Why does crypto have value?
Some might say that it’s simply because people have decided to spur themselves into a speculative frenzy. And at times, there may be some truth in this.
For example, DOGE once had a market cap of over $1 Billion USD. The coin has no limit on how many can be mined (meaning it is not fixed or even scarce) and has no special technology behind it. It’s like bitcoin without the bitcoin.
Still, even DOGE has intrinsic benefits that make it superior to fiat currency. It can be used for exchanges of value between two parties without an intermediary. And it can be used for very low fees.
DOGE still has a market cap of over $350,000,000 today. But DOGE is not a reliable store of value because its supply is infinite (just as the supply of fiat currency is infinite). With unlimited supply, the value of something can deteriorate quickly, as has happened with every fiat currency in human history.
But there is much more to the story than mere speculation.
The Intrinsic Value of Crypto
What gives crypto intrinsic value, on the simplest level is that mineable coins have a fixed supply. Anyone who has taken a high school economics course understands the significance of this.
While “pre-mined” coins can also be cryptos of value, their governance structure determines how they will be distributed. This creates controversy more often than not. A case in point would be XRP, the token native to the Ripple network (but we won’t go down that rabbit hole right this instant).
Getting back to mineable coins, something that is scarce becomes valuable for the simple reason that it’s difficult to obtain.
Oil, gold, agricultural goods, and other commodities are all scarce resources that many people need. The more people need them, the higher their prices rise due to competitors outbidding one another. Likewise, if there is a decrease in the supply of commodities, the price rises due to the competition being for a smaller pool of resources. This is known as the law of supply and demand.
Mineable cryptocurrencies are more than just scarce. They are fixed in supply, meaning only a certain amount will ever exist. Bitcoin, for example, will only have 21 million coins ever mined into existence.
In addition to basic supply and demand dynamics, cryptocurrencies have other features that make them even more valuable.
Key Characteristics That Give Crypto Value
Bitcoin and other coins like it have three primary characteristics that give crypto value. Crypto has value because it is:
- A store of value, like gold,
- A medium of exchange,
- A decentralized messaging application
Number three is often overlooked. Many people aren’t even aware of the fact that bitcoin can be used to send messages. But a transaction sent across the bitcoin network always comes with the option of attaching a message to it.
Never before has there been a decentralized technology with the capacity to send messages, store value, and exchange value without a third-party. And this is only one specific form of cryptocurrency.
The broader technology that underlies it, the blockchain, has tremendous potential and is a big part of what gives crypto value. Almost no one disputes the potential of blockchain.
Avesta and the Future of Blockchain
While blockchains have run into some problems in the past, the decentralized nature of the tech allows for new and improved systems.
For example, Avesta allows for a wide range of use cases including banking, traveling, engaging in ecommerce and much more. The creation of platforms like Avesta will lead to a more free and prosperous world.
— AVESTA.IO (@AVESTA_AVE) May 25, 2018