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Home/Magazine Archive/May 2014 (Vol. 57, No. 5)/Why Bitcoin Has Value/Abstract

Economic and business dimensions

Why Bitcoin Has Value

By Marshall Van Alstyne
Communications of the ACM, May 2014, Vol. 57 No. 5, Pages 30-32
10.1145/2594288
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Why Bitcoin Has Value, illustration — Credit: Sbastien Thibault

How can an intangible currency have tangible value? Bitcoin is a currency composed of nothing but bits. Unlike dollars or euros, bitcoins^a have no physical form, no government backing, and operate with little more than technical regulation. What value can a bitcoin have? If information can be copied or "wants to be free," and bitcoins are nothing but information, why are they not free? As Bitcoin enters popular consciousness,^b the digital economy offers this interesting question.

Consider four answers. First, Bitcoin's technical value lies in solving the double spend problem. Each bitcoin transaction uses public key cryptography to create a permanent public record that registers a buyer, a seller, and an amount as a tuple. This shows who can and cannot spend a bitcoin. Even someone who observes the transaction cannot forge coin copies. Software keys prevent anyone but the rightful owner from spending them.

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