What's Backing Cryptocurrency?

One of the first questions that many people ask as they dive into the world of #crypto is "What's backing #cryptocurrency? Where does it get its value from?".  Value of any asset simply comes from the demand.  The demand is influenced both by the utility and the scarcity (aka supply).  When the system was designed, it was created with a finite supply (21M in the case of #Bitcoin), which cannot be modified as the system is decentralized.  Setting supply aside, let's look at the value derived from utility.

Utility encompasses both today's utility and tomorrow's utility (speculation).  Today's utility can more easily be predicted: if an individual or business can use cryptocurrency to save $100 through disintermediation, then they'd be willing to pay up to$99 to use said cryptocurrency.  This drives up demand on a scarce resource.  The speculated utility is based on predicting the future, something humans are pretty terrible at.  Because of the uncertainty of the future, humans rely upon emotion to speculate their prediction.  If the investing population is not diverse enough this leads to wild price swings (see crypto 😜).

Many cryptocurrencies provide utility today and have a solid price floor.  Utility today can be seen through disintermediation, better control of assets, remittances, entertainment, diversification, medium of exchange, etc.  Many (more) cryptocurrencies have purely speculative value, which makes them naturally more risky.  It's important to understand that cryptocurrencies are diverse and fall under a wide range on this scale.  Don't assume all cryptocurrencies are solid and don't assume all cryptocurrencies are scams.

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