Why does your cryptocurrency have value?
I've been active in this space for the majority of this year, I've been a bull on cryptocurrency through and through, and yet the price swings of Bitcoin over the past four days have shook my beliefs.
There are currently 1338 cryptocurrencies listed on CMC. Why? Almost every one of these has gained value in the last year. Why? Bitcoin, the first mainstream cryptocurrency, is still the top dog in market cap. Why?
I want to live in a world where I am able to freely transact in a digital currency that is decentralized, secure, and infinitely scalable, most of us here do, but what currency will this be?
Ten years from now, I believe blockchain technology will have already greatly affected and entrenched itself into the corporate retail and financial spheres. Major banks and corporations are already seeing the cost- and time-saving benefits made possible by their adoption of projects like Ripple and OmiseGO. Product distribution chains are seeing the same benefits through projects like WaltonChain, VeChain, and Modum. Yet, I fail to see the tangible value proposition to an investor in holding coins with this sort of focus, and maybe more importantly, why there should be.
Somewhat similarly, I fail to see where most (all?) fiat-replacement-focused coins ascribe their value from in this stage of the cycle, when, unless I am wrong, they are not seriously being accepted as currency by any government or any corporation, only sometimes between individuals. More importantly, I fail to see how it is possible that any decentralized, blockchain-based coin can be used in this purpose on a global scale, as the recent Bitcoin and Ethereum network congestion and consequent fee hikes have led me to believe.
Thinking of a crypto more similarly to a stock, as a stake of ownership, and exchanges like stock exchanges doesn't make sense to me when considering value because the value of a network, and thus its constituent parts, unlike the value of a company and its constituent parts, is not tangible like a company's market value. Thinking of a crypto more similarly to a fiat currency, and exchanges like forex markets, also doesn't make sense because none are used in the same way a government controlled and mandated currency is, and it's possible that none can be.
Also, when two animals share the same niche in an ecosystem, competition occurs, and only one remains by the end. Fiat currencies essentially have the same niche, but their ecosystems are different: different countries. When the market is global, and hundreds of cryptos are vying for that top spot, of actually being "currency", it's not unreasonable to think that only one will win that contest. I believe that, to win that contest, it is imperative that the one foremost cryptocurrency of the future will be decentralized, secure, and infinitely scalable. Current blockchains aren't infinitely scalable; some blockchain-based cryptos are more scalable than others, but they all have their limit. The one crypto that promises infinite scalability and zero-fees, Iota, has issues in the other two departments.
This all brings me to my final questions. If your coin doesn't represent information relating to something tangible, isn't a security, and isn't a currency, where does it get its value from? If it has value, how can you determine if its price is undervalued or overvalued? If you find your coin's value in speculation of future value, how can an open, blockchain-based currency win in the future?
Sorry if this post has become rambly. I don't expect someone to answer all the questions I've phrased here, but I'm looking forward to a discussion on the valuation of current cryptocurrencies.
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