How Do Cryptocurrencies Justify Their Value?

In every product you’ve ever used, there are order qualifiers and order winners.

Order winners are the features you’ll mention to your friends when recommending a product. For example, when recommending a hardware wallet (like a Nano S), I’ll tell people to get one because it’s one of the most secure ways you can store your cryptocurrency. That’s the feature that makes it a winner for me.

Order qualifiers are things that the product must have in order for me to even consider it. My hardware wallet is small and easy to carry round. If it was the size of a tire, I wouldn’t consider using it. But the fact that my hardware wallet is portable isn’t a feature I would make my purchase decision on.

So, what the hell does this have to do with currency or your question? Every common feature mentioned about a currency’s value falls into the ‘order qualifier’ category (minus one big exception).

Let’s think about the US dollar. If someone asks you what gives it value, you might say:

It’s minted by the US government
Has a controlled supply
It’s hard to reproduce or forge
It’s easy to use and spend

You can probably think of other examples of what makes a dollar valuable. But the truth is that every single one of these features is an order qualifier, rather than an order winner. There are plenty of things that share these features (or equivalent features), but simply aren’t used quite like the US dollar.

The real order winner is simple:

Everyone you know in your life carries the US dollar and accepts it

That’s pretty much the beginning, middle and end of what makes it valuable. If the US government went bankrupt, it would certainly tank the value of the US dollar, but that’s not where the value came from. If you bought a car and found out that the windows don’t roll down, that doesn’t mean that the thing that gives the car value is functional windows.

So, if you created a newly minted coin, there’s really nothing that inherently gives it value, but there are lots of things that can disqualify it. This includes:

Having an unlimited supply
Not being easy to use or spend
Not divisible to a functional level

There’s plenty more. If you fail on any of these levels, your currency is flawed and will never have value. However, even if you check all of those boxes, that does not mean it’s valuable. The only way your currency gets value is by being accepted by a population and used within that population.

Cryptocurrencies have a number of ways of doing this. Some attempt to be platforms, where the cryptocurrency is required to use the blockchain. Some create superior privacy, allowing for anonymous transactions. And some are just Bitcoin. Regardless of the method, the thing that gives cryptocurrency value is being used by the population. If it’s not used, it’s not valuable.

Every currency, even USD, had to go through this process of initial acceptance. So the only way for your new cryptocurrency to get valuable is to get accepted.

Short Bio of the Author –Brian Schuster

Brian Schuster is an entrepreneur and solution architect in the blockchain industry. In 2017, Brian’s content on the industry was viewed over five million times through his profiles on Quora, Medium and Brian is currently developing a new blockchain analytics products, scheduled to be launched later this year. To get a first look at this new solution, sign up here.