Why Are Cryptocurrencies Worth As Much As The Dollar?
In the Crypto economy one has to determine value for themselves. Accepting price and determining value are two different mindsets. Most people would rather be told what the price is that everyone is to agree to rather than deter- mining value based on their own set of criteria.
Price is based in a consumer mindset and value is based in an entrepreneurial or investor mindset. The former is externally motivated and the later from your own internal set of values. The question to analyze is, what is money really? Money has six traits:
1.It is a medium of exchange
2.Portable
3.Durable
4.Divisible
5.Fungible (meaning one unit can be exchange for another)
6.A store of value
Gold and silver are the traditionalist definition of money. The dollar is not money because the piece of paper the amounts are printed on are worth very little. When you think about it, what’s the difference between a twenty-dollar bill and a one hundred-dollar bill? They are both printed on the same paper, right?
The only difference is the belief about its value.
A dollar is what’s commonly known as fiat currency. Fiat currency means it is legal tender or backed by the government as a means to satisfy all financial debts. But fiat currency can be printed over and over until so much of it is in circulation that it becomes worthless.
Historically, every fiat currency has gone to zero worth. It’s not because the amounts on the currency changed. It was the belief and confidence that people had in the currency that changed. Since 1913 and the creation of the Federal Reserve, the dollar has lost 96 percent of its value.
Gold and silver on the other hand has stored its value for many centuries. People still want to possess them. People still believe they have value. So the difference between any fiat currency and gold is the ability to store value. In this respect cryptocurrency is no different than the fiat currency dollar.
However, because of how a cryptocurrency is produced it has the potential to store value just like gold and silver. Money is really about perception than any hard fact. Gold and silver is valuable because we have been taught to believe it is valuable and no other reason.
Therefore, cryptocurrency has the first five characteristics of money. But tradi- tionalist are debating whether or not it can store value. The problem with that is,cryptocurrency is a new paradigm that wouldn’t be possible without modern com- puters.
Cryptocurrency could be a grand experiment that will fail miserably. But, my intuition says it is here to stay. Just like all money and currency has evolved and society has evolved so will our needs for methods of exchange for goods and services worldwide.
Think about it. Mankind has evolved from a barter system when it was transactions between villagers, friends and family to needing something more widely accepted outside of the locals. Now the fiat currencies have become a hindrance on the internet to facilitate trade.
Because of middlemen it costs all kinds of fees for transaction to occur and to exchange one currency for another. Cryptocurrency and its blockchain technology is disrupting the way governments and the traditional power structure does business.
Published at Sat, 04 Jan 2020 21:26:34 +0000
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