On the Origin of the Value of Cryptocurrencies

Abstract

Bitcoin and other cryptocurrencies received a lot of criticism during the last 9 years. It is not surprising that this criticism came from organizations that are threatened by the crypto revolution (banks, government, central banks, finance companies, etc.). Nevertheless, it is very surprising to hear criticism from economics schools, which oppose central banking and advocate free choice in currencies (such as the Austrian school of economics). Unlike the ordinary criticism (that Bitcoin is a scam, a bubble, etc.), which can easily be refuted, the criticism of part of the Austrian school economists is based on interesting arguments, which requires a different level of explanation. For example, it was claimed that Bitcoin should be worthless; otherwise, it contradicts Mises’ regression theorem. The object of the chapter is twofold: first to explain why the criticism is unfounded and second to analyze the origin of the value of Bitcoin and other cryptocoins from the perspective of the Austrian school of economics. In particular, it is explained that Bitcoin does not contradict the regression theorem for two reasons. First, the initial value estimation can be a random event, and second, the Bitcoin network (even now) has a nonmonetary value.