Why does Cryptocurrency have Value?
Cryptocurrencies have been around for over a decade now. Due to the nature of cryptocurrencies, the subject of their perceived value has been widely debated over the past few years. Several experts in the financial sector have given their opinion regarding the intrinsic value of Bitcoin.
For those who are venturing into the crypto space or those who don’t have much knowledge about Bitcoin, they are bound to wonder about the value of cryptocurrencies. Why do people confer any value? Why do we value them to the extent that they are now accepted as a means of payment by millions of vendors across the globe? Here, we will look at the reasons cryptocurrencies get their value and why people believe they are valuable.
The debate around cryptocurrencies
Fiat currencies have been the dominant form of money over the past few centuries. They have been used as a medium of exchange, to pay for goods and services. Governments issue fiat currencies across the globe via their central banks, and the currencies are backed by gold, which is universally accepted as being valuable.
Thus, over the past 200 years or so, people have accepted that fiat currencies represent money, and the government centrally controls them. That ideology changed a decade ago when Satoshi Nakamoto created Bitcoin. The cryptocurrency was created to serve as an alternative currency to fiat currencies. However, the most crucial question surrounding was their value. If cryptocurrencies are not backed by physical assets like Gold, where then do they derive their value?
Where do cryptocurrencies get their value?
Similar to goods and services, the economic value of cryptocurrencies come from their demand and supply. The supply refers to the number of coins available for purchase at a given point in time while the demand relates to the desire for people to own it. The value of Bitcoin, for instance, comes from the number of people that want to buy and possess it. At the moment, millions of people all over the globe wish to own a limited number of BTCs currently in circulation. The higher the demand for Bitcoin, the higher the prices. Thus, the value of a cryptocurrency depends on both the demand and supply of the coin.
Another reason why cryptocurrencies have value is because of their role as a medium of exchange and as a store of value. Cryptocurrencies continue to gain adoption amongst online merchants, and some offline companies now accept them as a means of payment. Due to their widespread acceptance for payments, more and more people consider them valuable. They are also considered as a store of value because of their long-term ability to appreciate. Bitcoin has become an alternative store of value for some investors over the past few years.
As cryptocurrencies gain legitimacy, larger-scale investors, and more adoption, their volatility reduces, and more people accept them as currencies. Cryptocurrencies offer even better transaction solutions to people all over the world. As more people accept cryptos, the more flexible they become in facilitating transaction, which in turn stabilizes their value. Thus, as they gain widespread adoption, the more people will use them as a means of payment. And as their use case rises, so does their value.
Cryptocurrencies are created to either solve a problem or be the currencies used in a network that solves a particular problem. Because of their problem-solving incline, cryptocurrencies have communities.
The community members have strong mutual trust regarding how the network works. The trustworthiness of the cryptocurrencies as a medium of exchanges for different goods and values are responsible for the value of those cryptos.
The value of cryptocurrencies has been hotly debated over the past decade. However, scarcity and demand, medium of exchange, store of value, widespread adoption, and the mutual trust in their networks are some of the reasons why cryptocurrencies have value.