How can cryptocurrencies (even) have value?


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. For instance, 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 factor. 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 Approval, people are widely using it.

Robotcoin
Mitchell Demeter, co-founder of Bitcoiniacs, installing the world’s first bitcoin ATM at a coffee shop in Vancouver, BC. October 29, 2013. Photo credit: David Ryder for WIRED

The other factor contributing to creating a cryptocurrency’s value through mining correlates to the power consumption. In the case of Bitcoin, the Blockchain uses as much energy securing it at present as entire countries. In fact, that drives tokens prices since it takes a certain amount of energy on average to ‘mine’ a coin.

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.”

Bitcoin Price chart
Bitcoin Index Chart over last week, fluctuating between 11433$ and 9800$. Source: CoinMarketCap.

Now, one wouldn’t expect Wall Street to roll out the red carpet for digital currencies that primarily prevail outside traditional finances. Or maybe, volatility is becoming be 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.

Fiat Leak
136.1 BTC Equivalent (1’512’465.90 $) flowing towards the crypto market in just 3 minutes. I Captured this on December 3rd, 2017 at 1 A.M UTC. Source: Fiatleak.com

Our Verdict

As of today (December 3rd, 2017), 1320 cryptocurrencies have blossomed (source: CoinMarketCap). Every day brings more new projects. 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.

By Mehdi Mezni

Leave a Reply

Your email address will not be published. Required fields are marked *

join our Telegram Channel
Close