Do all cryptocurrencies have intrinsic value?
With the thousands of crypto tokens and coins that exist today, many wonder if any of them even have intrinsic value. Mostly because some big names in the financial world have said that they don’t.
Although not every cryptocurrency is valued the same, some really do have intrinsic value. Making their price rises more than just hot air. However, most cryptocurrencies derive their value from a different aspect than your traditional assets would. Mostly because each crypto is different. Which brings many other aspects to their valuation. Because coins like Bitcoin will have a different use case than the $Chain token or a Catgirl coin.
What is intrinsic value?
Intrinsic value is a thing that highly depends on who you ask and what intrinsic value would stand for exactly. Because there exists no universal way to measure or define the intrinsic value of something. But if we define it by the dictionary definition of intrinsic value. We can say that the intrinsic value of something is defined by the value that something has by itself.
One example of this could be gold where its intrinsic value comes from scarcity. Or with oil that could be used for energy production. These are features that these things have by themselves. Without anything else boosting the value from outside.
When it comes to crypto it might sometimes look like they do not have intrinsic value for people that do not understand their use cases. Especially as there are many different cryptos that for a newcomer might all look the same. This is however not the case as many of these crypto projects have their own use cases that give them value. But that is not the case for all projects. As some coins/tokens will be created just to be created. And do not come with any use case or future improvements. These projects could be seen as worthless. But the line for this can be a bit blurry when it comes to meme coins. More on this later.
Where does Bitcoin get its value from?
Cryptocurrencies like Bitcoin have been spoken out against by large names in finance like Warren Buffet and Charlie Mongers as a product without any intrinsic value. However the comments from these two successful entrepreneurs. It is clear to most that understand Bitcoin that these two gentlemen do not understand Bitcoin’s use cases.
Bitcoin has several use cases by itself and because of its upgradability, it could even gain more in the future. However, we can not see that future yet. So let’s just focus on the things that make it already one of the most valuable assets in the world.
3 Reasons Bitcoin has intrinsic value
Just like gold Bitcoin has a finite amount of it making it resistant to inflation. Even though that is not completely fair as gold does inflate over time as we find more gold on our own planet or on others. Bitcoin however will only ever have 21 million Bitcoins. Which makes it the ultimate scarcity asset. This is one of the most important aspects that give intrinsic value to Bitcoin. Especially in a time when almost all countries experience higher than usual inflation rates.
The global high-speed payments network
Have you ever tried to send some Euros from Germany to someone in Taiwan? You probably have not. However, if you have ever had to send a financial transaction between countries or even from one currency to another. You will have noticed that it takes super long and you will pay extremely high fees for doing so.
With Bitcoin, you will pay a fee much lower than with any of the traditional financial payment rails. Plus your transaction will be confirmed within 10 minutes instead of a few days. And that would be on the main Bitcoin chain. If you do it on a Bitcoin sidechain like the lightning network, the transaction would cost less than a cent and take not even a second to be confirmed.
Financial programmability layer
Next to the first two mentioned things. Bitcoin is fully digital, programable, and upgradable. Making it possible to run other financial infrastructures on it. This way Bitcoin functions as a value and security layer for other protocols that would like to make use of Bitcoin’s security and permissionless network.
All of these things made Bitcoin so popular over the last few years. And add give Bitcoin its intrinsic value. With more use cases and innovations to be likely developed on top of its network in the future.
Why Meme coins hold value
Meme coins do not really give any value to their users like Bitcoin. They usually exist on another blockchain and have an inflationary model. So why would they even hold value? Well, it’s complicated. Really they should not hold any value. However, the communities around these meme coins bring a unique form of value to these coins. Which is a community value. Most meme coins fully rely on this.
This means that holding coins will make people more included in that meme coins community and thus spur the holding of the token. As this is still a new principle, no one can really 100% say how this will end up in the long run. But so far many meme coins have come to market with a strong community that gives a form of social value to them.
Is crypto backed by anything?
In most cases no. Most cryptos are not backed by any physical asset. But this does not mean they do not hold any value. Cryptocurrencies derive their value not from physical world backing but rather from the use cases they provide for their users. These can be things such as payment rails, computational networks, file storage, and many more things.
Not all cryptos are created equally though. With many tokens like USDT and USDC that are being backed 1 to 1 with the US Dollar. These tokens we call stable coins as they should hold a price-stable to the fiat currency they’re linked to. These stable coins exist for almost all fiat currencies like the Euro and Dollar. But also for certain precious metals like gold and silver. And in some cases can also represent other assets like stocks or houses.
Most cryptos do not derive their uses case from these sorts of things, however. But rather the ones that we mentioned before plus some extra use cases that are token specific, like governance power, or profit-sharing.
Why do people think crypto has no intrinsic value?
As we said there are a lot of big names in finance that claim that crypto has no intrinsic value. But why do these people say this, especially as these people should very well understand the financial model behind them?
Well, the answer as usual is not that simple. But what we have noticed ourselves is that it comes usually from 2 main things. The first one is simply a lot of the people that spoke out against it simply did not understand its financial model because of its technical aspect. This is sadly often the use case with older people that are not that used to the use cases of the technology. The investor type that does not use a smartphone will probably also have a hard time understanding why cryptocurrency could be useful when they do not even understand a simple smartphone.
The other reason we believe that some of these people speak out against it is because of their professional position. These people are often central bankers or large managers of fiat currency. These people would of course be against it as it is against their own interests and careers. Just like a butcher would not tell you to buy veggie burgers. And a Mark Zuckerberg won’t recommend you to start using Snapchat.
We hope this blog thought you a bit about why cryptocurrencies hold intrinsic value and why some do. And why some people think they do or do not think they should be worth anything. If you have any other crypto-related questions for us that you would like to have answered in a blog. Then feel free to contact and follow us on our socials.