Why Cryptocurrency Has Value

Written by

CryptoManiaks Editorial Team

If there’s one thing that nearly everyone can agree on regarding cryptocurrency, it’s that it is complicated and controversial. Some people earnestly believe that cryptocurrency is revolutionary and that it will replace fiat money (like the US dollar or the Euro) entirely. Others believe it is the biggest bubble of our time, destined to pop and be forgotten.

The main topic in question is this: does cryptocurrency actually have value? Or is it just a lot of hype and hope? And if cryptocurrency does have value, why?
 

why cryptocurrency has value

Does Cryptocurrency Currently Have Value?

Today, cryptocurrency has value - a lot of value. At the time this article was written, the total market cap of cryptocurrency (which measures how much it would cost to buy every coin of every cryptocurrency available) was well over $400 billion. Quite simply, the answer to whether or not cryptocurrency has value in an immediate sense is an indisputable, resounding “Yes!” Why cryptocurrency has value, however, is a more difficult question to answer.
 

Understanding Value: Market Value vs. Intrinsic Value

market price

When we discuss market caps and coin prices, we’re referring to the market values of cryptocurrencies. Market value describes what people are willing to pay for something at a given time. If the price of a certain cryptocurrency is $100 per coin, $100 is also the coin’s market value. Especially with cryptocurrency, market value can fluctuate rapidly and dramatically, largely because traders and investors disagree on cryptocurrency’s intrinsic value.

Intrinsic value is the actual value of a thing. For example, water has intrinsic value because we must drink water to live. Cars have intrinsic value because we can use them to get from Point A to Point B. Cryptocurrency isn’t tangible like water or cars, though, so its intrinsic value is far less obvious. In fact, cryptocurrency’s intrinsic value (or lack thereof) is the main point being disputed when we talk about its uncertain future.

Different Types of Cryptocurrencies

To understand cryptocurrency’s intrinsic value, it’s important to make distinctions between the different uses of cryptocurrencies:

  • Store of Value: For a cryptocurrency to be a store of value, it must allow individuals to buy its coins or tokens in exchange for fiat money (government issued currency, like the US Dollar or the Euro). Most cryptocurrencies accomplish this purpose, but their volatility makes them suitable only for people that can tolerate a high degree of risk.

Bitcoin is the most famous cryptocurrency used for this purpose.

  • Medium of Exchange: Can you send cryptocurrencies to other people? Can you make payments using a cryptocurrency? If you can, then that cryptocurrency functions as a Medium of Exchange. Again, this is accomplished by almost all cryptocurrencies. 

Unlike the Store of Value use case, though, cryptocurrencies already represent a significant improvement over most traditional currencies used as Mediums of Exchange. Many cryptocurrencies allow their users to transfer value quicker and cheaper than a bank would. 

Bitcoin is famous as a Medium of Exchange, but many cryptocurrencies created after Bitcoin accomplish the same purpose while doing it faster, cheaper, and with more privacy. LitecoinDash, and Monero are three examples of cryptocurrencies that are widely considered to be superior to Bitcoin as Mediums of Exchange.

  • Utility: While many cryptocurrencies aspire to be faster, cheaper, or more private currencies, many others are attempting to offer utility by solving different problems. These cryptocurrencies are using the power of blockchain technology to improve on current products and services as well as create entirely new products and services.
  • Steem is a cryptocurrency that may represent a better choice for social media than current platforms like Facebook. Unlike Facebook, Steem is decentralized - so there is no single company or entity that has control over your content. Also unlike Facebook, Steem gives its users a chance to earn income by posting content. 

Golem is a cryptocurrency that may give its users an entirely new way to purchase and monetize computing power. This ingenious project identifies a need and a solution. The need is computing power - many individuals and businesses simply don’t have enough. The solution lies in every smartphone and laptop that fails to use all of its computing power at all times. Golem hopes to connect all devices and allow owners of unused computing power to sell it to others that wish to purchase it - without any need for physical devices to change hands.
 

Cryptocurrency’s Intrinsic Value

Cryptocurrency’s intrinsic value comes from its ability to function as a store of value, a medium of exchange, and offer additional utility. It all comes down to technology. Cryptocurrencies give us new, better ways to do things we’ve already done and completely new, fascinating ways to do things that have never been done before.

How Cryptocurrency Gains Value

The people on the front lines of cryptocurrencies - the users, traders, investors, and developers - are not particularly concerned with whether or not cryptocurrency has value. For them, the answer to that question is obvious. The real concern for those in the know is which cryptocurrency will have the most value going forward.

Right now, the cryptocurrency scene resembles an arms race. There are already well over 1,000 different cryptocurrency projects, and although many of them offer entirely new use cases, many compete in the same space, as well. Each project is backed by a team of developers and other professionals wo rking hard to make their technology the best, most useful, and most efficient.

The factor that decides which cryptocurrencies gain the most value in the long-term is their ability to fulfill their promises. At the moment, many of those promises seem too lofty for people uninformed about cryptocurrencies. But only time will tell.
 

Speculation vs. Adoption

Cryptocurrency’s market and intrinsic values cannot be discussed without mentioning speculation and adoption. With regard to cryptocurrencies, speculation happens when individuals buy and sell coins hoping to profit by accurately guessing whether their prices will rise or fall. At the moment, with cryptocurrency still in its infancy, speculation is the main force driving cryptocurrency’s market value.

top 100 cryptocurrencies by market capitalization

If speculation drives cryptocurrency’s market value, adoption has the biggest potential to increase cryptocurrency’s intrinsic value. A cryptocurrency’s adoption describes how many people choose to actually use its technology. Although most cryptocurrency coins and tokens that are bought and sold today are done so out of speculation, the hope of cryptocurrency developers and enthusiasts is that they will eventually be bought mainly for adoption.

adoption curve blockchain

Cryptocurrency coins and tokens are not designed to be stocks, bought with the intention to be sold in hours, days, or weeks. As we’ve discussed, these coins and tokens are meant to fulfill real use cases. With time, development, and proof of the utility that cryptocurrencies bring, adoption may win out over speculation. If speculation takes a back seat, it will no longer be difficult to see which cryptocurrencies have the most value. It will be clear based on how many people actually use them.