What is the True Value of Bitcoin / Cryptocurrency? The true value of cryptocurrency is found in its underlying technology, its user-ability, and overall supply/demand.
As I am writing this article, cryptocurrencies are making a crash landing back to earth. If you pay any attention to cryptocurrency, you may be wondering if Bitcoin (and altcoins) are already dying. Let me assure you...there are many great years ahead for cryptocurrency. Here's why.
Imagine you just planted a tree. You start nurturing it and it soon begins to grow. A few leaves start to blossom, but the tree is not yet able to provide the shade you are hoping for. In your mind, you can picture yourself swinging in a hammock, but the tree has not yet grown or matured enough. As time goes on, and the tree matures, the branches become strong enough for you to climb, swing, or just plain enjoy the shade. Life is good!
Cryptocurrency is in the early part of its development. It is only 10 years old and is still developmentally immature. Since 2017, massive amounts of time, money and resources have been consistently poured into its development. As a result, the likelihood for this technology to produce beautiful fruit only increases.
So why are prices dropping right now? How do we find their true value?
Here are a few thoughts for you to consider.
How can something...that is nothing...have value???
You may be asking yourself why something invisible, that you can't even hold in your hand, has value in the first place. This is a fair question...and here are a few answers.
One answer is found in the technology known as blockchain. Blockchain creates a secure, unchangeable, incorruptible, transparent ledger platform that is controlled and regulated by a large network of computers. In other words, technology replaces the need for central entities, such as banks or governments, in typical currency exchanges. When you combine blockchain with a medium of exchange such as Bitcoin, you find that a digital representation of money can be securely exchanged anywhere in the world independently.
This is one of the best and most simple explanations for how blockchain works.
In addition, blockchain transactions can be used in many ways other than just currency exchange. For example, secure voting, medical records, accounting, supply chain management, and government record keeping are just a few industries that could be improved with blockchain. With that in mind, the value of this technology is found in what actual benefits it can provide for the end user. Currently, most of the projects that are being worked on are only in the development phase, which is why it has been so difficult to establish a solid, steady value. In a few words, the potential is great but the actual delivery on that potential is currently lacking.
Another way to derive value is by asking: How useful is a particular blockchain/cryptocurrency product to its end customers? Apple became the massive success that it is because of the simplicity and ease of use that it brought to it's customers. If you had to understand all the technical language before you bought your Iphone, you probably wouldn't have bought it in the first place. Crypto companies that produce products or services which are user friendly and easy to use will have the highest values. Unfortunately, most of the current crypto projects still are difficult for the average person to use or understand.
Supply and Demand:
Bitcoin and other cryptocurrency represent actual property. If you were buying a home on limited lakefront property you would expect it to represent more value. Many cryptocurrencies (not all) have a limited supply of coins and only a finite amount will ever be produced. As a result, you would expect them to represent higher values. For example, there will only be 21 million Bitcoins ever produced. If you can imagine a society that has totally shifted to using Bitcoin instead of paper money, you could easily see the value in owning this type of digital property.
What Other Factors Determine Cryptocurrency Value?
1) Easy To Exchange and Store. They don't take up a lot of space and can be easily exchanged through cryptocurrency wallets stored on your phone, computer or hard wallet flash drive. The easier it is to use the more value.
2) Durablility: Because they are not actually a physical item they are durable. Digital currency is really just specially coded data which is represented in number form (known as a private key). As long as you have this private key you have value. The longer it lasts the better the value.
3) Limited Government Control: Governments print tons of new paper money everyday, which ultimately decreases its value and buying power. Being able to "trust" technology, instead of a central government, provides the potential for a less manipulated financial system. Higher trust leads to higher value.
So Why Are Cryptocurrency Prices Changing So Rapidly...Up or Down?
With all the reasons I have listed above, it is easy to see why prices skyrocketed in 2017. Many people and businesses began to see the potential that blockchain and cryptocurrencies offered. Basically, they all could imagine themselves swinging in a hammock from the tree, but what they didn't see was that the tree is still immature and only has a few leaves on it. In reality, the true value of this technology is just beginning to show itself. People who jumped in blindly have a hard time realizing how challenging it is to create reliable products and services with this new technology. When people do not see immediate results they tend to look elsewhere and are not patient with the process. One of the main reasons for the recent drop in prices is likely due, at least in part, to this unrealistic expectation of failed immediate results.
What Can We Expect The Future Value Of Cryptocurrencies To Be?
I have never been very good with numbers and will not even venture a guess with a specific number attached to it. So instead...Let's look at it this way.
If There Came A Time In The Near Future When...
1) A younger generation decided to replace paper money with a newer digital currency.
2) Governments print the value out of the dollar and made it "worth less".
3) Businesses could reliably make fast, secure, easy to use transactions anywhere in the world without all the middlemen.
4) When the average person could just easily use cryptocurrency without having to understand it.
It is easy to imagine any, or all, of these scenarios as realistically possible. In addition, it is easy to imagine that as these trends continue, massive transfers of wealth will shift toward cryptocurrencies. As individuals and businesses provide real solutions to customers through this new technology, it is only natural that their value will increase. You can't stop an idea whose time has come.
So to answer your question: "Is Cryptocurrency Dead?"
No. The root system and tree trunk are growing just fine. There are definitely growing pains, and it always takes longer than expected, but at some point there will be a hammock hanging from this tree.
Next Article: Is Cryptocurrency Going Mainstream?...And When?
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