What’s the value of a cryptocurrency?
The question of intrinsic value often arises when those who are new to the cryptocurrency space try to wrap their heads around how a cryptographic-token can have value. Those who have fallen down the rabbit hole, however, question the very essence of value- especially when it comes to fiat currency of even gold.
The definition of intrinsic value isn’t the only thing that changes; value does as well. Is a glass of drinking water more valuable to a man sitting in a boat on a Swiss lake, or days away from the next glass while trekking across the Sahara?
Perception and value are conditional things that are constantly changing. Gold has acted as a source of neutrality for many millennia, for markets are able to exemplify the value from the perception of other asset holders. The value of gold is greatly contrived from the perceptual need people have for it; often to mitigate risk from holding another asset.
Value can be tied to usefulness as a general perceptual concept; not just the fact that gold can be used in industrial purposes. This is directly relatable to cryptocurrencies; Although the underlying code doesn’t hold a value that can be used in the physical medium as gold does, the usefulness and new applications they provide are already redefining. Gold’s use in industrial materials can be conceptually compared to blockchain software used in industry to increase efficiencies in the entire supply chain via automation and exclusion of the trusted third party. Bitcoin use by people has already found value by those who are under the tightest of capital controls. Those who are aware of its functionality, see it as an escape from poor economic policies which have caused their currencies to inflate. Over billion of the worlds un(der) banked can download an app and access services banks haven’t ever been able to provide for them.
There are now many different cryptocurrencies, and more on the way. Trying to determine value is difficult when hype marketing and Initial Coin Offering (ICO) hunters fill media channels with “the next big thing”.
We already have gold, the benevolent dictator, the Swiss bank, and direct democracy is on its way.
Gold- Bitcoin
Gold provided a stable standard for millennia, but it’s limitations in a digital world have become apparent. Most people who own gold rarely, if ever, actually trade in it. It is instead used as an asset class to offset risk in a portfolio. It has clear that the distribution and decentralisation of bitcoin may be its largest asset, and it’s greatest weakness. With no authority determining direction and a leader who was never known, collective discourse has turned development into a difficult task. As more forces and interests join in, it may very be that further evolution and introduction of innovation may slow to a stand still. That may just be how the new gold standard for the next 1000 years is created. Although capacity may be at it’s limit with the current block size, complementary technologies may fill the gap that the bitcoin blockchain can’t fulfill and leave “the” blockchain to be the most resilient network humans have ever created. Other blockchains will naturally be developed to fulfill privacy, speed, and capacity needs; all creating their natural value proposition along the way.
The Benevolent Dictator- Vitalik Buterin of Ethereum
The opposite of a distributed and decentralised, is the benevolent dictator. Lee Kuan Yew is the man who transferred Singapore from one of the poorest Asian societies to one of the richest in just a few decades. Some considered the laws and policies he implemented to be autocratic and actively suppressed opposition. The transformation into one of the world’s wealthiest countries was not likely with anyone else in his position. Vitalik Buterin, the inventor of Ethereum, often exemplifies a similar role. A well drafted vision has been developed in his lead, with most in the crypto-finance space having great respect for him. His role isn’t without controversy; just as any benevolent dictator. His controversial hard fork after the DAO fiasco divided the space, with loyalists of decentralisation sticking to ETC. The decision he made, whether you believe it was good or bad, was made by a leader uniting his followers and moving his vision forward. Ethereum was never intended to be the gold standard. Vitalik’s authenticity is obvious in conversation. His passion and intentions for the Ethereum vision is obvious; valuable in itself.
Swiss Banks- Z-Cash
Swiss financial institutions have had taken advantage of Switzerland’s neutrality and stability for decades to keep confidentiality of account holders. The security of the nation gave confidence to depositors (at greater cost), and in turn created a unique valuable proposition for the institution. Z-Cash may just fulfill the category of next generation “Swiss Banks”. Privacy guaranteed by State is removed, but replaced with hearty encryption. Privacy comes at a cost, but has obvious value to those who want to avoid those combing through blockchains to gather any data possible.
The Direct Democracy- Tezos
A direct democracy is a useful tool to help those with differing views to directly participate in a community. In society this is rare. In its most successful form, we have seen it in Switzerland where wars for centuries between very diverse populations (the rural farmers, city dwellers, Catholics, Protestants, French, Germans, Italians and Romansh) led to direct participation and undeniable stability and peace. The democratic process embraces constant evolution and change to fit the needs or desires of a community. The Tezos project, under development since 2014, appears to acknowledge of the value of democratic process with the inclusion of a built-in consensus mechanism to allow for the evolution of its blockchain without the risk of hard forks. Where the bitcoin lacks in evolution capacity, it has the advantage of the first mover and scale. Much was learned in the last few years, however, but the incorporation of those learnings have been made difficult because of a lack of collectivised discourse or central decision makers to incorporate the development core, minors and token holders. As we continue to learn lessons in the rapidly evolving cryptofinancial space, it may be Tezos that best includes democratic participation to evolve with the new technologies or towards a direction the community desires.
Nothing is perfect. Gold may fail to evolve fast enough to meet the demands of the future, the benevolent dictator isn’t immortal or always moral, the Swiss banks have succumb to regulation, and democracy tends to have binary result that alienates the excluded. When people try to wrap their heads around how a digital token can have value, they often don’t know why the paper in their pocket has value. In reality, it is the functionality that gives the perception of value. Cryptocurrencies can define their value proposition in many different ways, and users are free to choose the properties which they value. This is the decade where currencies will be redefined based on needs. Fiat currencies will be used at the grocery store for a long time to come, but the ability to store and transact wealth is no longer coupled to the geographic location we are in. Cryptocurrencies are complementary, not adversaries. Diversify, and hold tokens which are valuable for you. Network resilience, speed, privacy, or fungibility are now a choice as innovations quickly sprout and grow all around us.
