Reflections on Value, Amid The Crypto
Summer 2021, I spent almost two months in the foreign lands of finance. By then, the world had already entered a new era, crypto-everything.
It was the opportunity to, (a) forge myself a piece of understanding applicable to “things of value” and (b) use that to make sense of the ongoing changes around the world.
Far from being a piece on “strategies for trading assets” or “what NFT should you invest in”, this essay will speak about value in broad and big terms .
The backbone of the writing is the following series of questions, (1) what is value? (2) What are objects of value? And (3), what are the kinds of value that exist?
To answer these, I reason from first principles.
“Interactions are useful when there is a meaningful exchange.”
Be it material or immaterial, what is exchanged is conceived to hold what we call, value;
An auxiliary concept — an association — which helps us reason about importance.
Thus, the “true” value of anything is a nonsensical question. It is always decided with respect to “what”. All is to say, there are no absolutes. All value matters are relative and can at best be subject to convention.
We have to choose a context, a reference point.
By doing so, we can formulate a local rationale which helps us decide the value depending on the views of the involved parties.
Value can only be conceived as mediating†. A relation representing someone’s interest in a given object.
Or, someone’s willingness to exchange an object for a far more interesting one.
Value is decided at the moment of transaction as the conclusion of a dialog between both the seller’s and buyer’s rationales.
Of course, a swap of goods isn’t just about fair trade, it is also about logistic reallocation. Moving goods around makes previously inaccessible action courses available.
It is not just about actualita. The immediate. It is also about the potentia to satisfy requirements and forge opportunities.
Keep the action going and even thrive.
From the moment objects acquire value they become currency, as they vehicle the value assigned to them.
For such vehicle to enable change — as in through actions — it must be a catalyst of cause-effect chain reaction.
Substance is by definition anything capable of cause. Value is appointed to substances based how desired their effect is.
Both interest and need are part of the equation that determines desirability and usefulness.
Need follows from the realization about what-is-required to an actual end. It is immediate and thus, cannot be ignored.
On the other hand, interest is about potential ends that one might adopt in the future. It is then less immediate and its fulfillment can be postponed for more urgent matters.
All in all, value is appointed to an object according to how desirable is the effect granted by the act of possessing it .
And so, things acquire value according to their use within a given situation.
Value emerged — or so I argue — as a necessary concept to speak about and keep track of the status of a situation involving any form of exchange.
Think of it as an abstract device we use to reason logistically.
We call stuff of value, wealth. They can further be decomposed into the familiar economic concepts of, capital and labor.
Labor is the work involved in the realization of a certain end. The distilled product of labor is, capital.
These two related ideas can be assimilated through a simple example. Think of a valuable resource to mine.
To use such resource, we need to extract it and this is where labor comes in play. Everything from mining to transportation and refinement is work involved in the preparation of the resource for later use.
Once that is done, the price at which you’d accept to let go the accumulated resource would constitute your capital. The distilled product of your effort that you can use to buy someone else’s labor.
In fancier words …
“Capital is of value for the matter and space that it provides, while labor is of value for the energy and time that it provides. And just as matter is ultimately reducible to energy, so too capital is ultimately reducible to labor.” —
It is worth at least the minimal time and energy it takes to obtain or create, and no more than the maximal time and energy it can save elsewhere.
Labor is fundamental.
On another note, wealth is also accumulation of assets.
They are units of value and there are two kinds. We have FTs (fungible assets) and NFTs (non-fungible assets).
An example of a fungible asset are money bills and coins. One may have many copies of them at a given time, yet all copies are equivalent and they represent the same value.
Non-fungible assets on the other hand, like paintings and collectible objects are unique, in the sense that, we cannot produce a copy and expect it to hold the same value.
Moreover, ownership is another differentiating aspect.
An FT cannot be owned per se and even if you would say that a coin is yours it doesn’t add anything to its value. However, an NFT has a limited number of owners and that plays an important role in determining its value.
Elaborating further …
A transaction is a trade of assets whose underlying meaning is both an exchange of value and reallocation of goods.
It is only during transactions that the hypothetical — and negotiable — value of an asset materializes and is registered as part of its financial history.
Naturally there are reasons to value fluctuation. These are extracted from the content of the negotiation and the context surrounding the transaction.
Macroscopically, it is the demand on an asset and its supply which determine how often it’s traded and at how much.
The arena where all of this takes place is called, a market.
Even though the concept of value is fairly simple, the fact that “there are many types to it” makes value affair fairly complicated.
“In which order do these types influence the perceived value?” and “How do they combine?” are questions to be addressed locally through conversation.
Their resolution is both situational and process-dependent.
Having answered the two first questions, the last one got me thinking. I realized that “kinds of value” branch into “categories of value” and “types of values”.
The difference is that in the first case I used distinctions while in the later case I use, metaphors.
Speaking about categories …
The most obvious distinction one can do in speaking about kinds of value employs Quine’s diad†. Value is then considered as to whether it is of use in the physical or mental planes of our existence.
An example of material value is a resource like water, food and metals. Immaterial value is value in the sense that it affects our state of being, it is things like generosity, goodness, and trust.
Other types of value can be formulated by looking at Peirce’s progression. The focus then is about the various ways in which value can be attributed to something. And so, we have
(1) independent value or self-attributed value, (2) relative value as in, the value that is attributed by something else and (3) mediating value manifests only when something is used as a mediation.
An example of (1) is how humans value themselves, of (2) is how we conclude that something is valuable to us and of (3) is why we value money or any type of currency.
That is, money is valuable only cause we know that there is always someone willing to take it in exchange of something and so sitting money has only potential value until we are willing to put on the table.
Moving on to the last distinction. We invoke the Origin’s diad, that is, we speak of value as either being intrinsic or extrinsic.
Extrinsic value originates from the link something has to an end. It is not value emanating from the thing itself but decided by an end as it is the origin of value itself.
Intrinsic value is value that comes from the relation something has with itself, the end of an end is to fulfill itself and so it is “self-valuing”.
To sum up, a mean acquires extrinsic value because it is connected to an end while an end is intrinsically valuable.
An example of this would be how ingredients are valuable to a cook whose end is to make a dish. Ingredients are means to an end and their value is mostly derived through the interest or need of the chef to fulfill his end.
The dish — the end — is valuable in itself.
However, while a dish in this example is the end itself, it can also be a mean to … let’s say, to satisfy a client.
Ends can vary and chain into one another and in that process value gains both nuance and contrast.
There is one essential type of value that is, end value. All the other types — as we we will see in the next section — are just instantiations of it through end-specification.
Metaphors provide with an interesting background to speak about types. In what follows I will mention three while drawing parallels with the world of living organisms.
And so …
We say that something has exchange value, if it may be of little if any use value to either of the immediate trade partners — the seller or the buyer — but it was of use before, or is expected to be later, of use value to someone else.
It has value for being exchangeable.
It will cost something to get it from its ultimate source, and be worth something in sale to its ultimate destination, making it indirectly valuable to anyone in possession of it along the way, even those who have no use value for it themselves.
What is clear is that …
Trade cannot create nor destroy value, only distribute things to where they are most useful, and do ethical work as they move; just like chemical reactions may be endothermic or exothermic, absorbing or emitting heat, they cannot create nor destroy any energy.
Yet what is interesting to note is …
Just as living organisms — driven by the chemical reactions that compose them — can grow over time. Arrangements of capital and labor — such as businesses and corporations — can over time increase in value through their trading actions.
Owning such an organization, or a part thereof, is a mean to obtain continual new value.
Again, just as living organisms do not actually produce or consume energy, but merely collect it from their environments, refine it, and retain it for later use. Nothing of the investment value is actually creating (or destroying) value, but rather only collecting, refining, and storing it.
Now in the process of search and collection one might stumble upon a valuable resource which they might be able to guard and use, thus retaining the exclusivity over it. This form of access grants one with control value.
Such value can be extremely powerful as it enables the holder to control the entire market for that particular asset.
To close this topic on a high note. I want to share with you an interesting connection between value and information. Initiating with,
“Information is the cast of order on a substance.”
That is, in all activities where we alter the original chaotic state of matter — shape it to our use — we encode meaning through the new order we impose.
In its new form, substance embeds a representation of knowledge. That is, information.
It is obvious that such cast would require work. Order possesses value based on the labor needed to produce it. Its decay would imply a loss of value and the more demands there on it, the more it is traded.
While before we concluded that it is labor which is traded, it seems clear at this point that on a deeper layer, transactions are all about propagation of order.