It is quite common to argue that Bitcoin violates a king’s or nation’s privilege: the mint. We heard less noise when another public monopoly, the mail postal service, was privatized.

In the past, the post office was not always operated by the state. In Germany, the Von Thurn und Taxis family (originally Italian merchants) had the privilege of operating the postal service for centuries. They became incredibly rich and were titled princes.

Like the Medici family with their bank, the Thurn und Taxis with their postal services came close to being a sovereign power. Whether state-backed or not, communication is power. When the Morse system appeared in 1832, it soon gave birth to the Western Union. In fact, each time there is a new way of sending information, a new financial power rises.

Post stamps are little banknotes, with value not in currency, but in weight or time

Before Paypal, people were paying for low-cost items on eBay by sending postage stamps. The practice was commonly agreed upon because stamps have a fixed value and are thus like cash. But their value is not really pegged to a nation’s currency. In most cases now, the wording of current international stamps is a weight (20 g or 1 oz) and an indication of speed (e.g., 1-day express delivery).

The ability to carry some 20 grams abroad has real value. Its price is not at the discretion of a single government. When you send a letter abroad, you pay in the currency of your country, but the value is applied in another, so the effort is shared and the prices are negotiated. (The Universal Postal Union was born 70 years before the United Nations Organization.) And nowhere are the public post offices making huge profits. Roughly speaking, the price of an international stamp falls in the range of US$1.20.

Use and value of Bitcoin

Does this mean that Bitcoin, having the same use as a stamp, has a comparable value? Behold, Bitcoin is not a single stamp. It is a booklet. To wire a smart share, a warrant, a mortgage or the formula of a molecule — with a specific date, strong privacy, and a delay of few seconds — a very small portion of bitcoin will be enough.

Today 97% of Bitcoin addresses register less than 1 mBTC. No more than 220,000 addresses keep more than an ordinary dad and mum’s bank account and only 120,000 could be described as holding savings. It is reasonable to imagine that tomorrow, Bitcoin will be used more often to carry (information) than to store (value).

And the coming world will need a lot of these stamps. People are sending 20 billion “real” pieces of mail each day. What will happen when fridges, lifts or security cameras share information, and make transactions and payments? Today ten billion things are using the Internet. They could total a hundred billion before year 2050.

Extravagant assumptions?

I assume they will never use smaller part than bits (1 µBTC), keeping satoshis to pay transaction fees. Once all bitcoins are created and there are 21x10 12 bits for 100 billion things — which allows for 210 transactions per day — there will be no more than one transaction every eight minutes (since transaction validation can be 10 minutes). By the way, in 2050 there will be less bits available, and in 2140 there might be far more than 100 billion connected things, but it does not matter: bits will be both useful and rare.

Of course US$0.01 is not, technically, a floor price, but let’s say for a while that each bit cannot be worth less than one cent. The global capitalization of Bitcoin would thus be US$210 billion. It is obviously disproportionate, if one compares it to the capitalization of Western Union (only US$10.7 billion), but if the subject moves from sending money to sending letters, the US$210 billion only equals 2.4 times the capitalization of UPS, or 4.3 times the capitalization of Fedex.

Would therefore a US$10,000 value for a single bitcoin be totally unrealistic with regards to the above figure? I don’t think so. Actually, today companies and businessmen are paying far more than one cent for this kind of service. They pay something like US$4 (depending the country) for a registered letter, and probably an average of  US$10 for mailing via UPS. (A quarter of UPS items are just mail.)

The fact is that young Bitcoin is challenging antique and established powers. In old times, the yellow and blue mail coaches of Princes Von Thurn und Taxis were running everywhere on Holy Empire roads. Now the cargo planes of UPS or Fedex land in all airports. And Western Union has more than half a million agent locations around the world. Bitcoin in 2009 may have been described first as an anarchist dream, but if I am right, it will be seen as lèse-majesty!

At the end of the day, the price of bitcoin will not be the result of various market speculations, but will depend on how many bits human and things will use for automatically validated transactions, and on the price each newcomer will agree to pay for the stamp booklets.

My thoughts may lead to consider a quite substantial value in price because of the value in use, and to reconsider the already tired distinction between bitcoin as a currency and Bitcoin as a technology.

By Jacques Favier

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