Whenever I talk to someone interested in learning about crypto, the question I most often hear is, “But what gives crypto value?”
It’s a good question, but unfortunately also one that is hard to answer.
I’ve heard people sometimes answer this question with yet another question: “What gives the US dollar value?”
But that question is much easier to answer since the dollar is backed by the might of the US government. The dollar can be exchanged for goods and services just about anywhere in the world, which drives demand for it as both a store of value and as a medium of exchange. Simply put, people see the dollar as money, and who doesn’t want more money?
Crypto, on the other hand, is not quite there yet. Most people today view crypto as either a speculative vehicle, a promising new technology, or a flat out Ponzi scheme. This is understandable since cryptocurrencies aren’t widely accepted anywhere and currently not being used as money except by a very few. But that doesn’t mean this will always be the case, which to me is precisely where the value of crypto comes from.
To me what makes crypto valuable is what it makes possible. The true value of crypto lies not in what it does today, but what it can do tomorrow. If you were to tell me cryptocurrencies had already achieved their final form, I don’t think they’d have much value at all. But unlike the legacy financial systems that have hardly changed in the last hundred years, crypto is only getting started in its evolutionary journey.
By holding crypto over state backed currencies, what you’re betting on is a future where people are more likely to be transacting with cryptocurrencies than they are dollars, euros, or won. You’re betting on the technology improving, not ossifying, the community growing, not shrinking.
If you believe crypto will inevitably get killed off by our authoritarian governments, then you probably don’t want to be holding any crypto at all. But on the other hand, maybe you see what’s happened in places like Cyprus, Lebanon, Venezuela, and you’re worried it could happen in your own country. Maybe you’re all too aware that fiat currencies have an average lifespan of 27 years and seek an alternative way to store your wealth.
But crypto shouldn’t just be a hedge against the possible debasement of state backed currencies, it must also be a bet that over time more people will come to see this new technology as the better system.
As long as humans are alive, the demand for money will always be there. But what kind of money? Money that is centrally planned and engineered to lose its value over time due to inflation, or money that promises to be censorship resistant with a constant and predictable supply? With the former, the powers that be have made it all but impossible to have any sort of transparency in the system or to even store your own wealth. You’re all but forced to rely on intermediaries and central authorities to give you permission to use your own money. But this is not the case with crypto. Anyone can view the ledger, or review the code and see exactly how many coins are in circulation. Anyone can hold their own wealth on anything from a piece of paper, to a flash drive, or even just by memorizing the right words.
Nobody can say with any certainty what’s going to happen, let alone how long it will take. Cryptocurrencies could turn out to be a flash in the pan, or they could be the next great technological revolution.
What I do know is that the more people who lose faith in the current system combined with more people believing in the potential of crypto is what will ultimately lead to number go up. The greater number of people who actually use crypto as money, that build the protocols and infrastructure we need to efficiently run our global economy, the better our chances will be of creating a new and more valuable system.
That is where the value of crypto comes from. It comes from us. The internet has become a valuable technology because of all the people who believed in its potential and built the necessary tools, platforms, and businesses that made it useful in our daily lives.
I think of crypto in the same way. The value will come from people who see crypto as that rare innovation that can change civilization as we know it. Just like those who first discovered the value proposition of electricity, oil, metallurgy, and the like, those who recognize the value of being able to create something that is both digital and unable to be counterfeited will be the ones to usher in a new era in humanity.
Whether it’s a jpeg, an mp3, a software program, or a blog post, the internet has made it possible to cheaply reproduce (copy/paste) and propagate anything that resides in the digital world. What people must understand is that just as currencies can become debased, the internet has made it possible for the value of information itself to become debased. Crypto can solve both of these problems.
I am hopeful that what Satoshi Nakamoto created can fight this trend of debasement by finally giving us a way to store and send value in the digital world like we can in the physical world. And as long as more and more people see the value in that, the more value that will flow into crypto resulting in more mindshare, more building, and more economic freedom for all.