Marc Andreessen has a fabulous op-ed in The New York Times today called “Why Bitcoin Matters,” and it serves as a good primer on all things Bitcoin. Andreessen is a huge proponent of the anonymous digital currency, having invested in a number of Bitcoin-related companies lately.
Among the many things Andreessen tackles in his op-ed, he offers a salient take on the famous “Why is this stuff worth money?” question:
[Bitcoin’s] value is based directly on two things: use of the payment system today — volume and velocity of payments running through the ledger — and speculation on future use of the payment system. This is one part that is confusing people. It’s not as much that the Bitcoin currency has some arbitrary value and then people are trading with it; it’s more that people can trade with Bitcoin (anywhere, everywhere, with no fraud and no or very low fees) and as a result it has value.
It is perhaps true right at this moment that the value of Bitcoin currency is based more on speculation than actual payment volume, but it is equally true that that speculation is establishing a sufficiently high price for the currency that payments have become practically possible. The Bitcoin currency had to be worth something before it could bear any amount of real-world payment volume. This is the classic “chicken and egg” problem with new technology: new technology is not worth much until it’s worth a lot. And so the fact that Bitcoin has risen in value in part because of speculation is making the reality of its usefulness arrive much faster than it would have otherwise.