01/06/19 05:00 UTC-4

Trading for Dummies: K. Marx’s Labor Theory of Value and the Rate of Cryptocurrency

Karl Marx’s labor theory for cryptocurrency
Karl Marx’s labor theory for cryptocurrency

There are several theories that explain the reasons for the high volatility of the cryptocurrency rate, as well as the rate itself. After all, the value of Bitcoin and other altcoins is unstable, not tied to fiat assets, and not controlled by global (local) financial regulators.

We have previously written about the hypothesis of an efficient market and information manipulations that may affect the variability of the cryptocurrency rate. Today, we will take a look at another theory, which in some cases can explain the high cost of digital money.


Karl Marx’s Labor Theory of Value

Interestingly, one of the popular Marxist theories, which appeared long before the advent of Bitcoin, can explain its rate. It is known that the rate of digital currencies is not tied to precious metals, securities, or fiat money.

At the same time, it is a mistake to think that the price of crypto is not tied to anything at all. After all, cryptocurrency mining requires electricity, powerful equipment, computational capabilities, time, and, ultimately, intellectual resources. In addition, one can count investments in advertising, development, etc.

Interesting in the section: ASIC mining: how it works and how profitable it is today

The labor theory of value by the famous German philosopher and economist, Karl Marx, says that objects (assets, goods) are exchanged between themselves in such quantities as to ensure equality of socially necessary expenditures of human (or machine) labor.

It means that in order to calculate the cost of something, it is necessary to take into account the amount of time spent, efforts, and materials in comparison to the social and economic conditions in the country (world).

According to this theory, to calculate the cost of cryptocurrency, one must consider:

  1. The price of consumables and resources (electricity, appliances, internet, coolers for devices);
  2. Time spent preparing for the mining of crypto;
  3. Intellectual resources (the complexity of learning to work with cryptocurrency);
  4. Social need for digital assets;
  5. Availability for the use in the world;
  6. Consumer desires, prejudices, and emotional readiness for the use of crypto assets;
  7. Additional catalysts of the rate: advertising, popularity, social conformism, and other psychological factors.


Cryptocurrency rate "according to Marx"

A few years ago, one did not need to spend a lot of money to get cryptocurrency. Initially, it was enough to use a regular video card for mining. Today, when the difficulty increases and the amount of remuneration decreases with each subsequent halving, the situation has become more complicated. It is also important to take into account the fact that in many countries, the mining of cryptocurrencies is considered an entrepreneurial activity; it is taxed and controlled.

According to Marx’s theory, while calculating the cost of crypto, we take into account all the details: from the cost of electricity and ASIC to the need of people for this resource. Regarding people, have you ever wondered why manufacturers of crypto mining equipment sell it? After all, if cryptocurrencies were such a good way to make money, wouldn’t it be better to have as many digital coins as you can? Interesting, isn’t it...

According to Marx’s theory, mining technology is natural and cannot create costs. It can only transfer its own cost (plus electricity) to the finished product. That is, Bitcoin and altcoins can be called money that is tied to the cost of resources spent on its production.

Simply put, the dollar is tied to gold, and Bitcoin is tied to electricity and video cards, ASIC.

Editor: Jerg Wos

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