We’ve talked at length about Bitcoin here, mostly because our viewers requested that it be discussed. There a lot of mixed signals when it comes to the notion of cryptocurrencies, but the most common question of all seems to be: do they have any intrinsic value at all?
The short answer to this question is: “well, it depends.”
A piece on Investopedia (with items highlighted below) recently talked about the pros and cons of this argument, especially in light of multiple countries, including China, refusing to recognize cryptocurrencies as forms of legal tender. After months of rising in value, that’s starting to break down with many people wondering if there is going to be a bubble bursting in the near future.
According to Investopedia, “in order to predict cryptocurrencies’ future value, we should work to understand how value is derived. Value is a measurement of the ‘goodness’ of a given thing. Some things are instrumental goods, meaning they are goods because they allow us to access some other good. Intrinsic goods are good in and of themselves — they are the thing we work to attain.”
In fact, according to Adam Smith (author of the Wealth of Nations), “money can serve no purpose other than purchasing goods.” In other words, in order to be effective, currencies need to have 1) mediums of exchange and 2) act as stores of value. Is this true for cryptocurrencies?
Mediums of Exchange CAN BECOME Stores of Value
Investopedia writes that “If a currency is going to be a store of value, the value of it has to be stable. For a currency to have a stable value, it has to be an effective facilitator of transactions. For a currency to be that, it has to be ubiquitous. The ubiquity of a currency, and the increase of value that comes with it, is referred to as the network effect. The more widely a currency is used, the more flexibility that currency has to facilitate transactions, which stabilizes its value because simply, the more people accept it as a valid form of payment, the more people will use it as a form of payment. And as a currency’s ubiquity rises, so too does its value.
