Yes, that’s right. The title may have a few of you baffled. Why is the second value written within quotations? That’s because value is inherently subjective. We all view things differently, each with varying degrees of importance. Currency is the one true standard that we use to be are able to assign a value to things. Before currency was established, barter was the means of trade. That had many problems in itself, chief of which is the accuracy of what you’re trading for what you’re getting.
Currencies are regulated and managed by the governing body of any community. This central authority regulates the ebb and flow of money and it also monitors the value of the currency with respect to currencies from other countries. This requires another governing body to determine which currency has more value than another — that is in fact the whole premise that foreign exchange is built upon.
Of course, we aren’t here to discuss the foreign exchange. Rather, we’re going to discuss something that’s been quite disruptive in recent years — cryptocurrency.
What is it, how is it used, and most importantly, how do cryptocurrencies have value?
Cryptocurrency is a form of electronic currency that was initially introduced in the form of Bitcoin by Satoshi Nakamori. Satoshi, as a matter of fact, did not intend to create cryptocurrency. At the time of this serendipity, Satoshi actually meant to create an online cash system.
But the important premise of cryptocurrency is that it presents an alternative currency that’s transparent and secure at the same time. And this was achieved through decentralization and blockchain. The security of cryptocurrencies actually lies in its transparency, which are two concepts that typically don’t mix — and yet, here we are.
Cryptocurrencies are used as a form of electronic currency, but really, the hype surrounding it primarily revolves around the volatility of the currency, where its value can easily soar up to 10 times its initial value, but it also has the risk of dropping just as much in value.
And while a transparent, decentralized system may sound like it’s just asking to be hacked, that couldn’t be further from the truth. This is because of blockchain, a security process that protects cryptocurrencies by allowing each member of the network (a node) to access the blockchain (or master ledger), which is both unalterable and permanent. Basically, whenever a transaction is conducted, a node is assigned to verify the transaction. When the process is verified, the updated data is then added to the blockchain, which, as we established earlier, is unalterable and permanent. Each member of the network is then able to view this updated information and in turn, update their own ledgers to match the master ledger. This way, any inconsistency is easily seen and can easily be singled out.
Now, there are a lot of factors that influence the value of cryptocurrencies, and these are the same factors that influence the value of just about anything. The two factors that have the most influence in this case are Public Perception and Supply/Demand.
The fact that cryptocurrencies are decentralized and secure is enough to raise the inquisitiveness of the general public, and as a general rule, anything that raises curiosity on such a scale is bound to have a high demand for it. Couple that with a limited supply of just 21 million Bitcoins, for example, and you’ve got the basic recipe for a high-value item.
But that’s just the basics — the link provided above is the full and specialized explanation of cryptocurrency value. And I’m speaking of the totality of the cryptocurrency value here. The security, transparency, and the limited supply all contribute to the inherent value of cryptocurrency. And while some governments are slowly recognizing cryptocurrencies as a legitimate form of currency, most governments would still disregard its value.