‘Why does crypto have value?’ is the main question that everyone stumbles upon when first hearing about cryptocurrency. It is certainly valid as many current cryptocurrencies were never imaginable a decade ago.
The following breaks down some core concepts regarding why crypto has value. From a first principles perspective, the most basic answer supply and demand. In fact, this is how every resource on our planet gets its value.
What Is Crypto?
Cryptocurrencies are a medium of exchange but in digital form. The purpose of cryptocurrencies is to become removed from centrally controlled entities (such as your country’s government). Centrally controlled governments have full control over currency printing, and you as an individual have no say. In crypto, the goal is the total opposite of that. Cryptocurrencies seek to create a universal currency through no central control that anyone has access to.
Why Does Crypto Have Value?
There are a multitude of aspects as to why crypto has value. We covered the most well known being supply and demand. Now, we will take a deeper look into some of the dynamics you may not know about. The following breaks down the most well-known cryptocurrencies; Bitcoin and Ethereum.
Bitcoin’s Capped Token Supply
Bitcoin was the first ever invention of artificial scarcity. It was a pioneer in being the first ever digital currency to implement blockchain technology. Due to this, many believe Bitcoin will always serve as the crypto market’s leader. You can think of Bitcoin as similar to the S&P 500, as that index serves as an indicator for the top 500 companies in the United States. Bitcoin does this for the crypto market.
One of the most important attributes in Bitcoin’s protocol is its 21 million supply cap. To put this number into perspective, there are 8 billion people in the world. Now, imagine if only 1 billion people wanted to get their hands on a full Bitcoin. Inevitably, this would increase Bitcoin’s price and scarcity to a huge degree.
Vitalik Buterin, Ethereum’s founder, saw the flaws in the Bitcoin network and improved upon it to create the market’s next powerhouse protocol. Ethereum’s smart contract utility has made it the second largest cryptocurrency in the world.
Ethereum is widely used as a platform for dectralized applications or dApps to build upon. This is due to the unique mechanism it has in smart contracts. You can think of smart contracts as a regular contract. For example, think of signing a contract to work for your employer. At its core it is simply if you complete assignments abc, then you will receive xyz as compensation. Smart contracts do exactly that but in a digital form. Instead of waiting a couple days or weeks for a paycheck, imagine it hit your account the instant you completed your tasks.
Crypto’s value can be applied as with any other resource on our planet. It comes down to the supply and demand of the product we as individuals exert on it. The more people demand these digital assets, the higher the prices attached to them will be.
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