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Why do cryptocurrencies have value?
Why do cryptocurrencies have value?
That's a common question with a difficult answer because each cryptocurrency is different.
That's a common question with a difficult answer because each cryptocurrency is different.
For the most part these can be broken down into two different types of tokens:
For the most part these can be broken down into two different types of tokens:
Intrinsic Token
Intrinsic Token
Used to operate or record a transaction on the network, a session token.
Used to operate or record a transaction on the network, a session token.
Not a representation of a physical asset - not redeemable
Not a representation of a physical asset - not redeemable
Asset-Backed Token
Asset-Backed Token
A token which has a 1:1 or some ratio of reserve for a physical asset to represent value
A token which has a 1:1 or some ratio of reserve for a physical asset to represent value
Representation of a physical asset - could be redeemed for physical gold or some other asset - Similar to the USD when it was on the gold-standard.
Representation of a physical asset - could be redeemed for physical gold or some other asset - Similar to the USD when it was on the gold-standard.
Ok, so asset-backed tokens clearly have value. What makes intrinsic tokens valuable?
Ok, so asset-backed tokens clearly have value. What makes intrinsic tokens valuable?
Each blockchain protocol is different, but as for Bitcoin - its value comes from its network and user-base.
Each blockchain protocol is different, but as for Bitcoin - its value comes from its network and user-base.
Adoption
Adoption
106 Million people own Bitcoin. Being an Internet Protocol (like all blockchains) it can reach any user or device on the internet - upwards of 4.66 billion!
These "Internet of Record" protocols are a new way of transferring and documenting records on the Internet. Crypto's have the fastest rate of adoption in human history.
Efficiency
Efficiency
Standardized record keeping and programmable integration to other internet-based applications make for a simple solution to a modern problem. It has better settlement times than our traditional settlement system and Bitcoin's ledger is synchronized and immutable. Faster speed and efficiency lower peer-to-peer and bank-to-bank payment costs.
Security
Security
Bitcoin's blockchain (ledger) hasn't been hacked since inception (2009). Although exchanges have been hacked, the ledger itself has NEVER been hacked. 13-years of security and uptime is not something to be ignored.
Decentralization is key to keeping Bitcoin's ledger secure, with over 12, 130 public nodes. You'd have to hack 50% of them all at the same time to manipulate the ledger.
Scarcity
Scarcity
As Bitcoin continues to be the protocol and network of choice; its token scarcity remains relevant. It's protocol is design to only mint 21 Million Bitcoins, ever.
Although, as more blockchain "record keeping" protocols saturate the market, scarcity is threatened by market share loss and potentially more efficient protocols.
The value from the blockchain and intrinsic tokens is the service its providing. Think of it as "Records as a Service (RaaS). It's providing a perfect ledger, validating thousands of transactions, keeping records and moving value; something you would normally need to pay a bank or central party millions, if not billions of dollars to operate, maintain, and secure.
The value from the blockchain and intrinsic tokens is the service its providing. Think of it as "Records as a Service (RaaS). It's providing a perfect ledger, validating thousands of transactions, keeping records and moving value; something you would normally need to pay a bank or central party millions, if not billions of dollars to operate, maintain, and secure.
Functions of Money
Functions of Money
Unit of Account
Unit of Account
People recognize the unit of account - just as they know the price of an item in $USD
Medium of Exchange
Medium of Exchange
The items can be exchanged AND its largely recognized and accepted elsewhere
Store of Value
Store of Value
The value will remain, at least until you make the next transaction.
Money has many different functions, and even our best money (the $USD) isn't the best at all three, especially long-term.
Money has many different functions, and even our best money (the $USD) isn't the best at all three, especially long-term.
USD is a terrible long-term store of value
USD is a terrible long-term store of value
USD's became intrinsic once it de-based from the "gold standard" and became fiat money.
Fiat money is "inconvertible paper money made legal tender by a government decree."
Fiat money is "inconvertible paper money made legal tender by a government decree."
It's value comes from governments forcing its use, and the trust in central banks to keep the value stable.
Bitcoin doesn't meet those functions either - at least not yet. It's not widely accepted as a medium of exchange, and certainly not stable enough or widely adopted enough to be a unit of account. - Imagine asking someone what the value of their car is in Bitcoin...?
Bitcoin doesn't meet those functions either - at least not yet. It's not widely accepted as a medium of exchange, and certainly not stable enough or widely adopted enough to be a unit of account. - Imagine asking someone what the value of their car is in Bitcoin...?
The most important function of money is it's userbase; how many people accept it as money.
The most important function of money is it's userbase; how many people accept it as money.
Bitcoin's tokens act as a session to operate and record a transaction on the network - a network intrinsic token.
Bitcoin's tokens act as a session to operate and record a transaction on the network - a network intrinsic token.
As long as it works better than the current system; the network will continue to be used and the tokens will continue to have value
As long as it works better than the current system; the network will continue to be used and the tokens will continue to have value
Here's to hoping it's ledger security remains intact and user adoption continues to grow
Here's to hoping it's ledger security remains intact and user adoption continues to grow
- because it's the best deflationary asset ever made.
- because it's the best deflationary asset ever made.
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