All of the complexity around bitcoin makes it easy to lose sight of the singular question on which everything else about bitcoin depends: Where does bitcoin’s value come from?

Means and ends

There are things we actually want, and there are things we want only because we expect to be able to convert them into things that we actually want ¹. Let’s call these categories of things “ends” and “means”.

For me, a cookie is an end. I want the cookie so I can eat it.

For me, a cookie store coupon code is a means. I only want the coupon code because I expect to be able to convert it to a cookie at the cookie store.

My coworker then might also want cookie codes as a means because she knows that I want cookie coupon codes, so I will be willing to give her something that she wants in exchange for the cookie code that I want.

Her roommate might then also want cookie codes because he knows that my coworker wants cookie codes. The roommate does not know me and might not even know anyone who likes cookies, but he can still want cookies codes as a means as long as there is some path by which that code can eventually make its way back to someone who wants a cookie as an end.

The Hard Question

If the cookie store goes out of business, should anyone still want a cookie coupon code? Without the cookie store, there is no way that a cookie coupon code could ever eventually be converted into a cookie.

Remember that my coworker’s roommate only wanted cookie codes because he knows that other people wanted cookie codes. Maybe there were other people who only wanted cookie codes because they knew that *he* wanted cookie codes. Is it possible for the means of the cookie codes to detach completely from the ends of the cookies in a circular reference where all people want the codes only because other people want the codes? All means and no ends?

What does this have to do with bitcoin?

Bitcoin is a machine that takes in energy and spits out cookie store coupon codes.

But with bitcoin there is no cookie store and never was one- only coupon codes.

That is not what bitcoin is at all!

Try for a moment to forget the knee-jerk bitcoin talking points – these only add complexity. In what fundamental ways is bitcoin different from a cookie store coupon code without any cookie store ²?

But obviously I can sell a bitcoin and then use the money to buy ends.

The person you are selling the bitcoin to only wants it as a means.

Today people want bitcoins as a means because they know that other want people bitcoins as a means. But there are no ends for a bitcoin, only means. This is at the heart of The Hard Question!

Bitcoin is a store of value and that is why people want it. A bitcoin is its own end.

Where is the value stored in a bitcoin? How can the value of a bitcoin be converted into an end without selling/trading it to another person who also only wants it as a means? It is means all the way down.

The value is in the energy that is used in the “proof of work” it took to mint the bitcoin.

The energy that was used to mint a new bitcoin is gone. It can not be recovered by the owner of the bitcoin and not by anyone else. This is the foundational premise of how bitcoin works. ³

But bitcoin [ immune to seizure | decentralized | limited supply | etc ]?

These claims may or may not be true, but they are irrelevant to The Hard Question.⁴ Even if the cookie coupon codes are 100% secure, even if they are very easy to digitally transfer to someone else, and even if you are absolutely certain that no more cookie codes will ever be produced – should anyone still want a cookie code knowing that it is not possible for anyone to ever convert it into a cookie?

But the dollar [something something] so bitcoin [something something]!

This question is about means and ends and bitcoin. Bringing dollars into it is a distraction. If it helps, try to imagine a world with no dollars. Would this change anything about bitcoin being a means without ends?

If someone is willing to pay for something, then it has value to them and if it has value to them then I want it so I can trade it to them.

But what if the only reason they want it is because they think that you want it?

So another way to ask The Hard Question is: Can an isolated wanting loop with no connection to any ends be stable and self sustaining?

At some point, won’t someone actually want some cookies?

If no one wants bitcoin then why is it trading for $107,000, you idiot?

This is why I am asking the question. I honestly want to know the answer. I promise that I really, really want to love bitcoin for all the same reasons why you love bitcoin. I just can not love it unless I understand why anyone would want a bitcoin in the first place. Hopefully you understand, and hopefully you can explain it to me!

We need some abstract medium of exchange to solve the “double coincidence of wants” problem in a barter system. All mediums of exchange end up being mostly or completely means ⁵, but that is ok because the efficiencies we get from having them make up for the costs. Bitcoin offers enough of an advantage over the existing mediums of exchange to become a new schelling point. Like most money, it has value because users have implicitly agreed that it has value. This is a shared delusion, but it is useful on net to the people who believe it so it persists.

I think this is the best explanation, but I might argue that the usefulness of this shared delusion is not efficient since bitcoin is, in fact, a shockingly inefficient way to make transfers. Instead, I might argue that humanity has shifted into a new regime where we are always able to produce far more ends than we can ever consume. Since we evolved in a world of scarcity, we can not just update our beliefs to “it is no longer necessary to worry about scarcity”. In this world, there is new end which is “believing that we have a reservoir of stored value available”. Since we will never (on ballance) need to draw on this reservoir, we will never find out that it is actually empty. In this new world, the $2 trillion bitcoin market cap does not actually exist as a value store. It is just paper profits that will never (and can never) be realized. But that’s ok, because just being able to see these paper profits in our spreadsheets quenches our (now maladaptive) anxiety.

Let’s say you have a friend who has crushing financial anxiety. But you know that this anxiety is unfounded because your friend has a reliable income and is always responsible and frugal and spends far less than they earn. So you come up with a plan to help them. You tell them that you have found a sure-thing investment and if they invest $1000 then they will make $1 million. They trust you so they give you $1000. You use that money to fabricate and prepay postage on a lifetime’s worth of statements showing that your friend’s account has $1 million in it. Now every month your friend reads their statement and can sleep soundly. They continue to be frugal and responsible and never try to withdraw the $1 million and eventually die having lived out the rest of their lives in blissful financial security. Did you, in fact, help your friend? As long as your friend never needs to draw on the money that they think they have, then they were arguably better off.

Bitcoin is even better than your fake account because it pools a lot of people together so even if some people need to take some money out, the artifice can still hold up.

Unfortunately I fear that the day will come when enough people make a run on the bitcoin bank and find out the safe is empty, and when that does happen the shock will cause far more pain and anxiety than the delusion ever soothed. And in these moments of shock, we tend to be impulsive and reactionary and tend to do things that end up being very bad in the long run.

In the meantime, we are also misallocating some of our brightest minds by having them develop more and more complicated artifices to keep the delusion hidden from ourselves. We may now finally be able to produce more food than we will ever need, but there are still plenty big problems left to solve!

UPDATE 2025-02-05

Comments so far have been the type I was hoping to short circuit, so I guess I failed.

I tried hard to avoid referring to “intrinsic value” because it usually leads to semantic arguments about the meaning of “intrinsic” and the meaning of “value” and these arguments are a distraction. If your comment has either word in it, please see if you can rephrase it using the concepts of “wanting” (as defined above, even if you want “want” to be defined differently), “ends”, and “means”. I think staying away from loaded words and falling back to simple concepts can force us to sharpen our points of disagreement.

I tried hard to avoid referring to “dollars” and “currency” and “money”, again because I would to avoid arguing about what these words mean and if these things are good or bad. If you want to say that bitcoin has value in the same way that the dollar has value, try skipping the dollar. What if money had never been invented and then bitcoin came along into a world where there was only barter? Would you still want bitcoin? If so, then you do not need the dollar, just make your points about bitcoin directly! And, for the record, I strongly believe that a bitcoin is not like a dollar, so you are going to have to fight two battles if you want to use the dollar to convince me about bitcoin! :)

I also tried to avoid referring to “gold” because gold can be an end and The Hard Question revolves around means with no ends. You can object that “most” or “almost all” of people want gold as a means, and you might be right – but is irrelevant because even the tiniest amount of end is infinitely more than zero.

Finally, I steered away from “worth” because I know the “my shirt is worth as much as someone is willing to pay me for it” line of thinking well. But a shirt can be an end. A shirt can keep you warm and protect your back from the sun, so you might still want a shirt even if you knew that you could never sell it to anyone (especially if you were permanently stranded on a deserted island).

###

1. Here I use “things that I want” to very broadly mean all things that I would prefer to have rather than not have, including things that I need to have and things that I prefer to have only for instrumental reasons. ↩︎
2. If we want to get technical, a bitcoin is not even a coupon code. When someone says “I own a bitcoin” what they really mean is “there exists a list of bitcoin coupon codes and passwords and I know one of the passwords to one of those coupon codes.” Do note that (1) being able to change the password, and (1) being able to split a coupon code into fractional parts each with a new password are the only actions that knowing the password to coupon code enables you to do. There is nothing else you can do , and there is no way to “claim” a coupon code to convert it into something else. Any conversion happens outside of the bitcoin system, so someone might say “I will give you this cookie if you change the password for that coupon code to my password” but still the only thing that happens in bitcoin is that you change the password on a coupon code. But this is very different from redeeming a coupon code for a cookie. ↩︎
3. If you want to get technical, the energy spent in the proof of work function that creates new blocks serves only to make it costly to try to execute a double spend attack. The fact that it is possible (but not required!) to also create new bitcoin via a coinbase transaction when you make a new block header is a side effect, and it is a side effect that will eventually go away due to halving. ↩︎
4. I can make good arguments for why these claims are factually false, but this is irrelevant to The Hard Problem. ↩︎
5. There was a time when people cut off other peoples’ heads to make it rain, and they believed that it worked so they kept doing it for a long time. That does not mean that we should now consider this as a good way to prevent droughts. ↩︎