Cryptocurrency Value?
Recently, cryptocurrency Bitcoin (BTC) has reached a price
of US$10,000 on 11/29/17. Like many others interested in making a buck, I’ve
been intrigued in how cryptocurrency prices, specifically BTC, can keep increasing;
and how I can jump onto this money train. Early investors could have gotten BTC
for pennies, and some of us are kicking ourselves wondering: why didn’t I
invest? Knowing the true value of a stock or other financial instrument can be
difficult to predict, but people make their livelihoods from it! Cryptocurrency
is even more troublesome to predict the value of. With stocks for example, you
can look at the company behind them, calculate a cost benefit analysis, or current
events. Value can be seen pretty quickly, where as with cryptocurrency-there is
not a centralized force behind them. No company that gives cryptocurrency its
value, or money back if you are ripped off. Although, cryptocurrencies “were
designed as a unit of exchange and as a place to store assets without relying
on a central bank” (https://bitconnect.co/bitcoin-information/10/how-is-the-price-of-cryptocurrency-defined).
Based off of this description of cryptocurrency, we can start
to see its true value: as a decentralized unit of exchange. With an innovative idea
like this you can extend the uses of cryptocurrency from beyond a simple EURO
to USD, currency exchange, into some more diverse applications. Not only can
cryptocurrency be used as a unit of exchange to buy a hotdog from a vendor, but
it can be used to skip over traditional wire transfers-trading peer to peer
regardless of distance.
If you look at the trending price of BTC, as well as the trending
number of users/purchasers of BTC, you can see that as the number of users
increase-so does the price of BTC. This insight can be seen as one of the ‘main
drivers’ of cryptocurrency price defined by bitconnect: “perceptions on its
value by the public”. If the public did not perceive value, they would not
become users/purchasers and BTC would not have hit such a historic high. UofA’s
very own Rachael Dunn, https://ai.arizona.edu/people/rachael-dunn,
furthers this by saying “The value of bitcoin is essentially dependent upon the
trust of its community that it will succeed”. BTC is a tool, and its value is
defined by those who use/buy it. Once a tool becomes irrelevant, the value it
once had plummets.
I ask you now, what is cryptocurrencies value?
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Rachael’s Full Response:
I've struggled to
understand this myself [how do cryptocurrencies create value] but have come up
with a few reasons the Bitcoin community has been able to justify the value of
bitcoins. I'll try to condense it for the sake of time.
Historically, the
value of anything has depended on the value a society is willing to place on an
object.
Gold for example, is
considered precious and limited and therefore valuable. Let's say someone was
to stumble upon a large gold mine, for examples sake we'll assume the mine was
so large that it would more than double the amount of gold in circulation. If
this discovery were to be publicized the value of gold would decrease
tremendously as a result of the increased availability of it.
Another example would
be the value of diamonds. In first world countries, jewelers are able to market
a diamond for thousands of dollars based on cut, color and clarity. Another
price factor is the jeweler itself. Just like shoes and cars, people are
willing to pay more for a brand name product. I chalk this up to equal parts
good marketing and ignorance. In some areas of the world, diamonds are mined in
large quantities but the companies who control their distribution have
historically restricted their availability, thus creating the illusion that
they are rare and valuable.
People buy both gold
and diamonds because they trust that their value is timeless. Gold is
advertised as an investment technique and grandparents often pass down jewelry
they consider to be valuable mementos. Just like a sales rake in a store, when
people stop buying something for its "accepted" price, the
distributers of that product will lower the price and thus decrease the values
of the products.
The value of bitcoin
is essentially dependent upon the trust of its community that it will succeed.
As I'm sure you're researched, the currency value of bitcoin only really began
to increase after the amount of users began to increase. Even more recently,
retailers have started to accept bitcoin as a form of payment, creating
material value for the cryptocurrency.
I believe this
essential trust is derived from a combination of the innovation and curiosity
surrounding cryptocurrencies, the security of using a decentralized network
structure, transaction anonymity, and the network of people using it from
corporations to cybercriminals.
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I ask you now, what is cryptocurrencies value?
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