Cryptocurrency as the Unquestioned Base
There’s a debate around about what exactly gives BTC/ETH value. Sure, you could make some arguments that these networks have mining, hash power and exchanges, but that doesn’t explain a lot of the valuation in the last 9 years, even beyond the market bubble we’re in. These cryptocurrencies, even at a 10% of their current price, are still more valuable that the technology. It’s nonsensical to say the least.
But that’s because we’re looking at the bare bones of a future industry that don’t really make sense without the ecosystem. I suspect this is the case because when you ask similar questions about the US dollar, or any fiat currency, it too has very weak answers to support it’s ‘value’.
Try answering for yourself: What gives the US dollar value? ‘Because everyone uses it and has faith in it” is a common answer. And that’s about as bullshit of an answer as anything I’ve heard to explain BTC. It’s true, I guess, but that’s very far from the type of solid logic you would expect. You might hear explanations including the strength of the US military, fiscal policy or the US dollars ubiquity in the market, but still, there’s nothing there that solidifies it, at least logically.
What’s more convincing about fiat currency is not what gives the US dollar value, but the opposite: what value does the US dollar give you (or your assets)? After the gold standard era of currency issuance, there really was nothing ‘backing’ USD value, but you knew certainly things, like how much it cost to fill up your gas tank or what the price of milk was going to be, and whether that price was rising or falling. Or that if you needed to go purchase a home, you went to a bank where you asked for a loan in dollars and proved you could pay it back by proving your income (in dollars).
By introducing even more complicated financial instruments, like stocks, debt, company valuations and more, the US dollar became even more important to how everything ran. USD became the unquestioned (and unquestionable) base despite having weak reasons to support it’s intrinsic value. When you’re concerned about what the fair valuation of General Motors and whether it’s a good value compared to Tesla, you’re not also wondering if the USD value is fair. The value just is.
I don’t believe we’ll ever have a totally satisfying answer to ‘What gives BTC/ETH value?’. The typical answers will likely have something to do with hash/staking power, the size of the miners, how many developers use the network, etc. However, the more people use cryptocurrency to evaluate other assets and products in the ecosystem, the less the question of value will be asked. Not because it got intrinsic value or a good answer, but because people just starting using it.
If you haven’t read Vitalik Buterin’s proposal for the DAICO, I highly recommend it. In the proposal, ICO token holders become more than just blind investors, but voters in the future of whatever project they’re investing in. One of the most interesting aspects of a DAICO is the suicide clause, or the ability for the investors to call ‘foul’ and get their investment out of the DAICO. This creates a valuation method to start measuring the ‘bare minimum’ value of each token in ETH. And if you have that value, a lot of new valuation options become available for the cryptocurrency market. ETH is the base to all of this while people ask questions at higher and higher levels.
We’re constantly trying to defend cryptocurrency’s value from the onslaught of people who say “it’s not backed by anything”. But the solution to this problem is not a satisfying answer, but in an industry, so vibrant, useful and interesting that people stop caring whether cryptocurrency is useful and just start using it.
