Introduction

Though most probably are already aware Bitcoins value is directly tied to it's security and scarcity. Economic value as i had covered in my Value of labor article is attributed to scarcity. Within a functional economic system that is to say in an society that has less immediate concerns such as survival. Once basic needs such as food water shelter ect are covered this then allowing for the market attribute value to luxury assets.

Scarcity V.S Artificial scarcity

Artificial scarcity while beneficial to to those whom supply artificially scarce products. Society is negatively impacted by such practices, allocating resources to "luxury" items that have no true scarcity or inherit value. Such practices are incredibly common however as well as dangerous. Economic bubbles can most often be attributed to artificial scarcity, a personal favorite would be "tulip mania" that occurred in early 1600's.

While many traditional luxury items are scarce and posses an inherit value in our modern society. Including but not limited to precious metals as well as certain goods that have legitimate scarcity. Unlike scarce goods artificially scarce items use legal means to create said scarcity. Society then attributes a value to said item a good example would be designer clothing. While popular there is no true scarcity outside company copyright practices and finite production model.

Bitcoin a scarce luxury

Precious metals, classic cars, art/antiques, as well fine wine and rare liquor. Are examples assets that modern investors consider worthy of an investment due to their demand outweighing the supply. Bitcoin may now also considered luxury item investment. Due to one aspect that many investors use to decide weather an asset or commodity is worth investing in called the stock to flow model. Aforementioned model attempts to value BTC in a way reminiscent of how other scarce assets are attributed with value.

Ethereum & Bitcoin

Through out Bitcoins lifespan for the most part it functioned as a trading currency. However recently the number owned for a prolonged duration has increased. While the ethereum network has been processing double the amount of transactions as Bitcoin. Bitcoin's value and level of bitcoin being held for a prolonged duration has increased. Due to the popularity of stable coins and other ERC 20 crypto Bitcoin is no longer utilized as a trading medium but an investment.

Emulation sincerest form of flattery

Though there is a concern for the market getting several mock versions of BTC like wrapped bitcoin, and Year.finance. To clarify Yearn.finance is not a direct copy like WBTC it is a high value asset made to facilitate high valued DEFI transactions which is essentially the same thing.

While i initially viewed their arrival as a negative potentially flooding the market and rendering BTC worthless. I recently have come to the conclusion they are a necessity as appose to flooding the market. The BTC market is no longer splitting focus by which i mean the market while previous need for monetary transactions is lessened the inherit value and scarcity has not. Resulting in the ability for BTC to be simply an investment as apposed to a transaction medium like fiat.

Conclusion

History tells us that necessity and scarcity drive economic value. Fiat developed to address the issue of precious metal scarcity resulting in a system that instead of being a note worth a certain amount of gold for example. The note was valued for the equivalent of any bartered good or service as well as gold. Such a system is reminiscent of what is currently happening with WBTC , Yearn.Finance , and stable coins in DeFi. As appose to fiat devaluing gold it had no real affect on the attributed value because the scarcity hadn't been affected. When applied to the digital equivalent BTC and ERC 20's the outlook seems positive. Due to Bitcoin and its Sacred Scarcity.