Before comprehending the subject of crypto-value, we first need to broadly define the term “value” in transactions. Typically, something must be relatively scarce and widely accepted by others to serve as a mean of payment or trade. Gold, silver, diamonds, and oil, for example, all derive their value from being scarce and expensive to mine.
Similarly, the U.S. dollar has its value determined by the exchange rate, treasury notes, and measurement against foreign exchange reserves. As explained by Economist Doug Levinson for a Ted-ED, the dollar’s intrinsic value comes from two major factors: as a matter of fact, it’s the only currency that the government accepts. And it’s what the public uses for commerce.
Translating that to a digital currency like Bitcoin, there is only a limited amount of Bitcoins available. And even with no Government issuing authority, people are increasingly using it.
The other factor contributing to creating a cryptocurrency’s value is through mining. The process involves machines solving mathematical algorithms. The currency’s value de facto correlates with the power consumption. In the case of Bitcoin, the Blockchain uses as much energy securing it at present as 159 countries combined. In fact, that merely raises up token prices.
Volatility, and the Bubble concern
Literally, none of the above explains the cryptocurrencies values going through the ceiling. Nor does it explain their volatility. In an article published by The Guardian, Ajit Tripathi, Fintech director at PwC argues that Bitcoin’s meteoric rise and its creation myth have attracted more buyers. “Bubbles are driven by sentiment and stories, and Bitcoin has a great story with a lot of mystery and spectacle to it,” Tripathi says. “Is Bitcoin at $40,000 by the middle of next year unthinkable? It’s not. But is there a logical and rational explanation for why it should be? I don’t think so.”
Now, one wouldn’t expect Wall Street to roll out the red carpet for digital currencies that primarily prevail outside of traditional finances. Or maybe, volatility is becoming the rule, not the exception. As bulls and bears lock horns about the prospects for the rapidly ascending cryptocurrencies, we are on the verge of a new era.
As of today (December 3rd, 2017), 1320 cryptocurrencies have blossomed (source: CoinMarketCap). Every day brings more projects, more cryptocurrencies, and a wider spread and acceptance. Every minute witnesses more FIAT flowing towards the Crypto-market. And everyone can have a say in this new world. Where Banks don’t rule anymore. Where yesterday’s “geeks” are the new sharks. And the Wall Street bull moans like a dove.