“You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
— Alan Greenspan, Former Federal Reserve Chairman

Bitcoin & Intrinsic Value: The medium is the message.
People love, hate, and are outright confused by Bitcoin, but I’d like to persuade you that the story at the core of this ever-changing conversation and the common thread throughout it is trust — who or what to trust, and why.

When agreeing to accept a currency, you place trust in that currency to be worth trading in the future. Some commodity-currencies, like gold, have intrinsic value, but that value has been magnified by their historical dependability as a medium of exchange. Fiat currencies, like the U.S. dollar, have no intrinsic value except that they are guaranteed as a means of exchange by a government’s laws and, if necessary, its army. Both historical performance and governmental backing can validate a medium of exchange, but what makes Bitcoin interesting isn’t just that it’s created a better means of exchange — it’s that it offers a new source of trust: knowledge.

Knowledge (or trust in knowledge) is what has divided and confused such a broad spectrum of people, and it’s what holds the frightening potential to resegment the haves and the have-nots into the hackers and the laymen. The key question for understanding digital currency is: Do you trust open-source systems or closed-source systems?

Most organizations operate like a proprietary, closed-source system. Their internal activities are a secret, their organizing principles are unknown, and their security depends on secrecy. Trust is granted through authority and through relationships built over time. Most of the world trust closed-source systems, and it’s not hard to understand why an entirely open and transparent alternative might cause confusion. To someone who sees authority as power and secrets as security, a transparently operated currency run by peers looks crippled from the start. But to someone who’s learned to trust in white-papers and peer reviews, an open alternative to currency looks like a safe haven from human error and influence of every kind.

“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.”
— Tyler Winklevoss, Entrepreneur

Among coders & hackers, we have a saying for closed-source systems made secure through secrecy and authority. We call it “security through obscurity”, and it’s meant as a warning — or sometimes an insult. To a substantially large and growing segment of the population throughout the world, open systems are trustworthy in a way that closed systems can never be. Through our technological advancement, we’ve learned that open systems are the most trustworthy because they are forced to be secure by design. They can be researched and understood by anyone who wishes to study them, and they can be peer-reviewed and scrutinized freely. Systems that require their implementation to be hidden for the sake of security are, in contrast, inherently flawed. To this population, an opaque system of government guarantees over a privately organized banking infrastructure looks like a liability.

So, do you trust open-source systems or closed-source systems?

In the end, your take on Bitcoin is going to depend on not just who you trust — but how you trust. Gold and silver enthusiasts trust that historical performance will match future performance. The world trusts the Federal Reserve to manage the dollar and the U.S. government to back it. But what Bitcoin offers the market is something that it hasn’t had before: the ability to place trust in your own knowledge and understanding alone.

“There are 3 eras of currency: Commodity based, politically based, and now, math based.” 
— Chris Dixon, Technology Investor