In recent years we are witnessing the introduction of a new type of money called cryptocurrency.
Although cryptocurrencies don’t exist for many years, they have already managed to make a massive impact around the globe.
More and more people around the world start using them independently of their country or social status.
Even if someone doesn’t use it, it’s highly possible to have heard of it or even discussed about it.
All this sudden popularity that crypto has gained has resulted in the birth of a series of questions such as:
- What is the environmental impact of cryptocurrency?
- What are the benefits that cryptocurrencies offer?
- Why is cryptocurrency valuable?
The purpose of this post is to provide a complete answer to the crucial question:
“Why is cryptocurrency valuable?”
The value lies in the absolute trust that blockchain and cryptocurrency offers, a characteristic that assures economic transactions are completely accurate and verifiable.
Additionally, cryptocurrencies meet the prerequisites in order to be used as money.
Finally, the use of cryptocurrency guarantees a more fair and transparent economic and financial environment compared with the current.
So, let’s take a deeper look at each one.
Level of trust
The key technology behind the cryptocurrency environment is blockchain.
Blockchain is often defined as a decentralized ledger.
Ledger is a term meaning a book in which permanent records (such as financial transactions) are written.
Blockchain is such a book created in a decentralized manner.
In the decentralized process, a large number of independent servers keep an exact copy of this ledger filled with data.
When an economic transaction happens, the important data from it are recorded simultaneously in every independent server.
If a person that participated in that transaction claims something about it, we will ask every server to give us the data in need to see if that claim is true or false.
If the absolute majority of the servers are coming to a consensus about the data of the transaction it is non-negotiable that this is the truth.
As a result the records kept inside the blockchain are absolutely accurate and unfalsifiable.
In addition, everyone trusts them and this is exactly what makes them valuable.
Crypto can used as money
The value of cryptocurrency also stems from the fact that crypto has everything it takes to be used as money.
Money has three basic functions:
Scale of value
In order for an exchange to happen, it is necessary to know the exact value of each good.
To calculate and evaluate that value, it requires a scale of value for every product.
So to satisfy this condition, the money must allow the 4 arithmetic operations:
- addition
- subtraction
- multiplication
- division
It’s pretty much obvious that any cryptocurrency has the ability to do that.
On the contrary, if we take for example the case of diamonds – a product that everybody agrees on its high value – they are not suitable for the above arithmetic operations.
Medium of exchange
When talking about the medium of exchange we are talking about the function that synchronizes the timing of transactions.
For example, let’s say there is a person who is going to receive sugar tomorrow and he wants to exchange it for salt.
The problem is that the person who possesses the salt needs to leave for another place today.
In this occasion cryptocurrency would be in position to facilitate and eventually allow this transaction to happen.
As a result crypto meets the criteria needed to give a solution in this problem, gaining more value for itself.
Store of value
Finally, money provides its owner the ability to save it until there is a need to purchase goods or services.
This is a function that cryptocurrency poses in order to provide a solution to the misalignment of transaction opportunities.
For example products like meat or vegetables may have a lot of value now, but after a year they will have zero value.
These 3 criteria that all cryptocurrencies meet, proving they offer equal value compared to the current type of money and financial system in general.
Let’s continue by taking a look at what other valuable characteristics cryptocurrencies have giving them the competitive advantage over fiat money and deposit currencies.
Cryptocurrency use promises a better economic society
At last, we are going to discuss a major advantage that crypto brings to the table which we will see from the society point of view.
Briefly, you can take a look at the list below:
- Decentralization
- There are no transaction fees
- Cryptocurrencies are immune to inflation
- Cryptocurrency is not restrained by national borders
- Transactions can happen 24/7
For further analysis you are welcome to read the article “5 benefits of cryptocurrency and why are important”
Let’s continue…
The birth of the first crypto happened at the same year with one of the worst financial crises that history ever recorded, which was the real estate financial crisis back in 2008.
Ordinary citizens around the globe were questioning not only the authority that centralized entities such as the global banking system and big international corporations have over everyone’s daily lives, but also the implicit trust that is placed in these institutions.
Bitcoin is unique for being the very first representation of value outside the system of existing institutions’ underwriting, approval, or participation.
Although it probably happened consequentially it’s ironic that Bitcoin came at the time ordinary people needed the most!
