Bitcoins and the Consumer's Perception of Value

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This blog prides itself on being a (mostly) upstanding, information rich resource for current business leaders, aspiring entrepreneurs, and every ambitious person in between. That being said, recent news has been chalk full of stories about the shutdown of a (mostly...who am I kidding, completely) illegal website called the Silk Road. You can think of the Silk Road as a black market Craigslist where you can purchase anything from drug paraphernalia to weapons to fire works, all from the comfort of your home. And while I admire the entrepreneurial spirit of the creator of this website (he was solving a consumer pain point, after all), I'm sure he won't be admiring the view from his jail cell while he spends the rest of his life in prison.

But I digress. Why am I bringing up this illegal website, you ask? What does it have to do with business and entrepreneurship, you say? Well, although I am most definitely not an advocate of starting illegal businesses, the Silk Road used Bitcoins as it's form of currency, which poses an interesting case study on a consumer's perception of value.

If you've never heard of a Bitcoin, you aren't alone. Created in 2008 by the pseudonymous developer "Satoshi Nakamoto," A Bitcoin is a form of digital currency that is independent of any central authority. Its value is regulated by a free market of supply and demand and has an exchange rate equal to a volatile US dollar amount. It's this fluctuating value that allows us as current and aspiring business leaders to peer into the consumers' mind and truly see how they perceive the value of a good or service.

Although there are some people out there who purchase Bitcoins for investment purposes much like a stock,  the majority of people who purchase Bitcoins do so in order to purchase goods or services off of commodity websites that don't accept USD or have PayPal. What's interesting to note is that since Bitcoins don't have a normal exchange rate, these online commodities that are priced in Bitcoins derive their value almost exclusively from consumer perception. Products and services aren't worth more than a consumer is willing to pay for it, and since the exchange rate of Bitcoins are extremely volatile, its the perceived value of the commodity that drives its price.

Whereas the USD and other forms of currency are regulated in order to keep the currency's buying power somewhat stable, Bitcoin values are so unstable that it truly is a case where the demand for a product or service - and not the buying power or value of currency - almost exclusively drives its price. And since one consumer may demand a product or service more than another consumer, it becomes even more clear that the consumer's personal perception of value is what ultimately drives the price of a commodity. Some consumers are willing to spend a lot of highly volatile Bitcoins on a product or service while other consumers are willing to spend a lot less on the same product or service, and due to a free market economy, the price of that commodity finds a happy, value driven, medium.

This idea of perceived value by the consumer is extremely important, and one that is not exclusive to Bitcoins. Perceived value is what can take an inherently  great product or service and turn it average in the eyes of the consumer, and vice versa. Positioning your commodity in the marketplace so that it is perceived to have value is almost more important than actually having a valuable product or service...almost.

There is, however, some truth in that last sentence. You can have the greatest product or service in the world and be absolutely sure that you are fulfilling a consumer need, but if those consumers don't perceive your product or service to be great or valuable, you might as well have no product or service at all.

The last thing a consumer wants is to be spoon fed. You may know without a doubt that you have something a consumer segment needs, but you need to sell it in a way that the consumer perceives a need for it, and not sell it in a way where you are telling the consumer they need it.

Perception is reality, and for aspiring entrepreneurs and current business leaders, its the consumer's perception that is our reality. It's imperative that when we bring a product or service to the marketplace we are understanding our target market and positioning it so the consumer perceives it to be valuable. That way instead of seeing a product or service that claims to do one thing or the other, the consumer sees a product or service that screams, "this is the value I will add to your life."

And I don't know about you, but as a consumer, I'm always looking to add value to my life.


- Perceived value equals real value, and not the other way around
- Value actually has a price tag; if you can increase the perceived value of your product/service you can charge a higher price for it
- Positioning your product or service in the marketplace is as important as the product or service itself
- Don't buy illegal things off of suspect websites
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