Is the value of nano arbitrary? There is no work required to produce or obtain it.

It is the long held belief that commodities derive their value from the human labor expended to produce them. Bitcoin and almost every other crypto derives its scarcity, and therefore value, from the proof-of-work required to produce a block and obtain the reward.

Fiat currencies like USD have a fixed amount of labor required to acquire them. For example 1 hour of minimum wage labor = $7.25. This establishes a peg to which all other goods and services can be compared.

Nano has no human labor expended in its creation. So, is there any peg to establish its worth? I think Nano is very novel in this manner.

This is the demand theory of value versus the labor theory of value debate.

The labor theory of value has no supporting evidence: a thing does not have value based on how much of cost was expended in its creation, its value is based on how much people want it.

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Supply vs demand is what matters, not just production cost.

For example, if it cost me $1 million to produce a new car, but it only gets one mpg and dies after one mile, no one is going to pay me $1 million for it. Likewise, even if one Bitcoin cost $1 TRILLION to produce, no one would buy it for that much unless they could get that much value out of it.

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Right @Qwahzi, let's take your bitcoin example. It costs me $1 trillion to produce a bitcoin. Since no one will buy it for that much, it can always be exchanged for some value less than $1 trillion. Suppose, tomorrow, no one will exchange it for something less than $1 trillion dollars and I still want it. Then isn't it logical for me to produce my own bitcoin? So in a way, the production cost can play an important role as long as there is demand. If production cost is lower than exchange rate, a rational person will produce.

For nano, things are a bit different. If I want nano, I can only exchange some other good for it. How do I value this good in nano? There is nothing to compare nano to. Why would it be that 1 banana = 1000 nano or 1 banana = .000000001 nano? Like @clemahieu is saying, the value of nano is determined by how much someone is willing to exchange it for. But this determination to me seems completely arbitrary. Additionally, because nano is impossible to produce, there is no limit for how high this rate of exchange could be. I could never opt to produce nano, I can only accept what others will offer me for it.

If I want .000001 nano and I can only exchange it at a rate of 1 nano = $1 trillion dollars, I have no other choice. There is no limit for how high the rate of exchange could be. That is what I am getting at I guess. And this property makes nano very unique.

Thanks for discussing this topic with me! I think this is really interesting.

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@misterflowers to understand the exchange value of money (and Nano, Bitcoin and USD are all types of money), you first have to understand what "money" really is. Money is a commodity that has come to be generally accepted as a medium of exchange. Because it is generally accepted as a medium of exchange, its value to a given person can be defined by the amount of purchasing power that it gives them relative to all other goods and services available.

The cost to produce it does not matter. We can see that by several examples. First, you gave the example that USD is somehow "pegged" to real value by the existence of a minimum wage. But labouring for an hour does not "produce" $7.25 worth of new, freshly-minted USD. Rather, labouring for that hour simply persuades someone to give you $7.25 of their existing stock of USD. When the Bitcoin emission process concludes and all 21 million Bitcoin have been produced, will the value of Bitcoin drop to zero or become impossible to calculate because it no longer has any cost of production? Of course not. It would continue to be exchanged at a similar rate, for the same reason that unbacked fiat USD are exchanged at a fairly stable rate. The exchange value of money is determined by past prices on the market itself. If I see that a loaf of bread cost $3 yesterday, and the day before, and the day before that, going back for over a year, then I can be fairly confident it will also be pretty close to $3 tomorrow. So, when someone offers me $12 to do a task, I can say to myself "well, I guess that would buy me about 4 loaves of bread". That is how people value money, by considering the past exchange values of of the money relative to the things they want to buy.

Because of this, the famous economist Ludwig von Mises argued that money must begin as a commodity exchanged on the market for some other purpose. For example, gold was used for jewellery and as a useful metal before it became money. As it became clear that gold was very durable and widely desired, it became generally accepted in exchange, and became "money". Once it functioned as generally-accepted money, people who had no interest in jewellery or metalwork would still value the gold, because they could exchange it more easily than anything else for what they actually wanted. This is how money first comes about, by having some pre-existing non-monetary value. Fiat currency like the USD starts out by piggy-backing on gold. At one time, the USD was really a receipt for a certain amount of gold. You could go to the bank and hand in your USD in exchange for physical gold that it represented. That link has now been cut, you can no longer exchange USD for gold. But because the system of prices in USD was already in place, and because enough people valued the USD for its exchangability apart from redeemability to gold, we have been able to keep using the USD without interruption (so far).

In the case of cryptocurrency (including both Bitcoin and Nano), I think the best way to understand the value that it had prior to becoming accepted as a general medium of exchange (that is, as "money") is its value as a payment network. PayPal is a very wealthy company, because they provide excellent payment-network services. Cryptocurrencies essentially compete with Paypal, Stripe, etc. to offer a similar service with lower costs of transacting. Those cost savings give people incentive to transact via Bitcoin/Nano rather than Paypal, and a side effect of transacting on the Nano network is that you need to use the Nano token. This is what creates initial demand for the Nano token itself. Over time, the price of the Nano token takes on a life of its own as it becomes widely accepted in exchange for a vast range of different goods and services, which collectively give exchange value to Nano.

Hope that helps. Money theory is fascinating stuff.

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If the production cost of one Bitcoin is $1 trillion, but you can't sell it for that much, why would you try to produce your own Bitcoin? If you're talking about creating a completely new Bitcoin from scratch, you could do that, but part of Bitcoin's value comes from its community and having the ability to transact with people

Value IS arbitrary. Prices are determined by market forces (supply vs demand), and either side of that equation can change for many reasons. You always have a choice though - that's what buy and sell limit orders are on exchanges. You can say, "I want 1 Nano for $1", and people can choose to sell it to you for that. If there are a ton of sellers and no buyers, then the price drops, but if there are a ton of buyers and no sellers, then the price increases

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@misterflowers start here https://www.youtube.com/watch?v=mzoX7zEZ6h4

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hit the nail on the head :ok_hand:

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In the $1T bitcoin example, @Qwahzi, it may cost one person $1T to produce a bitcoin but that cost is different for others. For people who already own the necessary setup or have more efficient miners, it may cost them much less to produce bitcoin. What is important here is that for this person who can produce bitcoin for $1T, they will produce the bitcoin if exchange rate is > $1T. Everyone has their own production cost. That is why there is an upper bound for rate of exchange. If rate of exchange is too high, people will opt to produce. For nano, this option is not available.

@fatalglory I have read your response and I found it to be helpful in this discussion but I feel like there are still some disagreements between us. I also hope you will fully understand and read previous replies before responding.

I understand and agree that money is a commodity.

The cost to produce does matter as we have found in the discussion between @Qwahzi and I. The USD "peg" provides the relative value for which all other goods and services can be compared. This is the important property that nano does not posses which is what this whole discussion is about. You are right, no USD is produced through such a labor. But this property of USD is important because it establishes the relative value of USD to all other commodities and services. Nano has no such "peg" and its relative value to all other goods and services cannot be established. When the bitcoin emission concludes, nano and bitcoin will share the same property of a fixed supply. What will differentiate nano and bitcoin is that there is some pre-existing measure of bitcoin's work required in its creation. This may provided a relative measure. Nano has no pre-existing relative measure of its value.

I disagree with Ludwig von Mises and his formulation. We agree that money is a commodity that becomes money later on. But I do not agree that USD has value because it had value yesterday. Have you never heard of hyper inflation? Fiat currencies have an uncontrolled supply. If tomorrow, the federal reserve increased the USD supply 1000x, the value of USD would not stay the same.

The last part is interesting and is one possible explanation to the value of nano. I think that it is fair to value the Nano network as a Payment network service. The entire Nano network provides a service and we can give a value to this service. But the exchange rate of nano is irrelevant as long as the value is transferable. If someone wants to transfer 1$ to someone using nano, it doesn't matter what the exchange rate of nano is, as long as the value at the end of transfer is 1$.

I don't agree that Cryptocurrencies are very comparable to a business though. Paypal is just business that facilitates money transfer. I believe nano and other cryptocurrencies are a good like gold and oil. The Nano network is what allows the exchange of nano. There could be a Paypal-like business facilitating nano transfers (BrainBlocks) but there is no good exchanged within Paypal besides USD. Thats why it is better to compare nano to USD and BrainBlocks to Paypal.

Happy Sunday!

I also want to be very clear that I am not saying nano has 0 value. I am saying that because nano cannot be created, there is no comparable measure to its value. It has no relative measure to any existing good. So its exchange rate could be any number and it would be just as usable.

I think it's worth noting that this is NOT unique to Nano. There was a time when Bitcoin was in fact used with an exchange rate of 10,000 bitcoins to 1 pizza. Bitcoin is also entirely usable no matter what the exchange rate happens to be. If the fiat price of a bitcoin drops, then some people stop mining because it is no longer profitable, the mining difficulty adjusts and the payment system continues on.

Likewise the USD. The USD has been worth much more in the past than it is today. Yet it was always perfectly usable. I also think you are simply mistaken about the "peg". If all minimum wage laws were abolished, would that destroy the "peg"? Of if the USD underwent a 100x hyperinflation, but the minimum wage laws were not updated, then labour would apparently be worth $0.0725 in today's dollars. Seems like the "peg" is pretty meaningless if it can swing arbitrarily like that.

The question is, since we all know that the USD could theoretically start hyperinflating at any moment, why does anyone accept it in exchange? It could be worth zero tomorrow for all we know. Answer: because we base our present valuations on our knowledge of historic prices, which are a reflection of the supply and demand for the currency at a specific point in time.

Thats true about bitcoin and nano, about their usability at any exchange rate. But unlike nano, bitcoin is created every day. Notice how when the price goes down, the difficulty and therefore production cost go down. That is why the exchange rate and production cost are related. Nano cannot be created. That is what is different about Nano and bitcoin.

If USD goes under hyperinflation, minimum wage would likely increase. But it is not important what the minimum wage is though, as long as minimum wage exists, it establishes a relative value for which all other goods and services can be compared. Nano does not have such a relative value. That is what is different between Nano and USD.

There is nothing to compare a nano's value to. Nano cannot be created so there is no labor involved. It has no laws establishing its value. Therefore nano's value is completely arbitrary. You all have made me believe this so much, I hope you will share this with other nanites. They may get a good kick out of 1 raw = .01$

Market forces determine the price of bitcoin. “Production cost” follows as a secondary phenomenon, hence POW and emission status are irrelevant to this discussion. The essential premise is that supply is predictable and immutable.

Minimum wages are denominated in fiat because fiat currencies are widely accepted measures of value. This doesn’t mean that the price of bitcoin or Nano is completely arbitrary.
When major fiat currencies hyperinflate, it will make more sense to price things in terms of bitcoin or Nano instead of USD and Yuan etc.

It's funny when marxists try to understand subjective value and the price system.

Can you explain why production cost follows price?

Not a marxist, just trying to explore an idea. Yet to see a strong rebuttal.

Price drops -> some miners stop mining -> less competition for the block reward -> participating miners receive more bitcoin.

Overheads didn't change but participating miners got more bitcoin, hence production cost decreased.

This is how production cost follows market valuation.

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I see what you are saying. If the price is too low, some miners cannot turn profit and are forced out of the market. That is one scenario where the production cost follows price.

Can it not also go the other way? Take for example if a new ASIC mining was developed. This allows the groups who control the new ASIC to mine much more efficiently than others. This would drive up the difficulty and make production cost higher for those who cannot mine with ASIC. Additionally, because the new ASIC machines are more efficient, the miners can sell at a lower price and still turn profit. This is one scenario where price can follow production cost. The ASIC machine drives down the price as miners sell at lower prices.

Or consider the effect of the halving on price. When the halving starts, miners are now mining at half the profit with the same cost. Either the production cost will have to drop or the price will have to rise in order for the miners to continue. We have historically seen that it is the price that increases and not the miners who leave. So here we have production cost increases - > price increases.

There are many different ways that price and production cost interact. I would not say that one determines the other only that they can both influence each other.

Nano has no production cost and cannot be created. Its value has no relation to anything that exists. There are almost no restrictions on the price. The only restriction I can think of is if the value is so high that it cannot be divisible.

ASICs do not drive the price down. Why do you think miners would sell at lower prices?

Halving events don't force the price up. Miners who can't break even drop out, miners continuing to participate make less profit. Advancements in mining technology increase the hashing power, which is balanced by an increase in difficulty. It doesn't drive the price up, or keep the price up.

Hype around the halving event can increase the price, which in turn attracts more miners to participate.

Money doesn't have tangible value, whether it's Bitcoin, USD or Nano.
The purchasing power is only a function of how much money there is, and the total value of everything there is to buy. This is how the valuation of every currency (Zimbabwe dollars, bitcoin, ripple, euros, Nano) relates to everything "that exists."

Nano has over a billion trillion subunits available to represent every USD cent in the world's current money supply.