Blockchain

How Does Cryptocurrency Gain Value?

It comes from 3 different sources

It almost seems like every five seconds, crypto’s value is plummeting – then it skyrockets back up. Investors start panicking. Losing money, selling, then gaining money when it comes goes back up. But how does it all work? How does cryptocurrency gain value? 

While it can be confusing, it can also be a little deterring when you see the instability and volatility of an asset like crypto. So before you dive into making investments, it’s important to understand the basics of what crypto actually is, and where it gets its overall value from.

First, it starts with understanding the tokenomics – the economics and dynamics – behind the different tokens on the market. 

So Where Did Crypto Come From?

In 2017 after the great recession, an anonymous genius by the name of Satoshi Nakamoto created the first-ever cryptocurrency by the name of Bitcoin. He wrote up a message explaining the currency and system of the blockchain, and posted it on a public forum. He invited people to join the Bitcoin blockchain and start exchanging digital money like they do with regular money.

It was essentially Satoshi’s way of saying “eff you” to the banks and financial systems we’ve created that are full of greed, centralization and inequality – and transforming the way we handle our finances with a completely decentralized trust-based system. 

From then on, more and more coins from Ethereum to Solana to Dogecoin started popping up everywhere – and people began assigning just as much value to these virtual coins as they did real goods and services.

So How Does Cryptocurrency Work?

Cryptocurrency is a digital currency that works on a decentralized system called the blockchain, and is controlled and protected by the most advanced code out there. 

Lost? Don’t worry. It’s not a simple concept. Crypto is basically a new financial system where money is exchanged from person to person using a public digital ledger, rather than a centralized, private, paper ledger they use at the bank. 

Essentially: crypto removes the middle-man. Everybody’s money isn’t being stored in a single organization like it is in the banking systems. Instead, everyone holds their own money in their own wallets, and it’s all tracked and recorded on the decentralized ledger called the blockchain. 

Because it’s a totally public system, if someone messes up, steals or hacks the system (which often happens at banks), everybody would see it and there would be a majority vote to disapprove the transaction. It’s a system that runs community and trust.

We have a whole video that breaks it down a bit more right here.

Each cryptocurrency is different in its own way, runs on its own separate ledger, or “blockchain”, and each one almost has its own separate ecosystem. Every token has different applications, trends and communities surrounding them. 

Why Does Cryptocurrency Have Value?

When you think about cryptocurrency – try and think about it like money.

A dollar bill is just a piece of paper. But because we’ve all automatically and collectively agreed to a contract that this singular paper has value – it does. The same principle applies to crypto.

Simply put: crypto is valuable because of a collective agreement made by a specific group of people. Value in general is entirely subjective.

Some believe that crypto is a useless trend that’s worth absolutely nothing and everyone who has investments in it is digging themselves into a never-ending whole of debt and despair…

Meanwhile, others think it’s the greatest revolution to ever take place on planet earth.

So as long as a group of people believe crypto has value, it will. 

But what justifies its value to this group of people? How do they dictate the numbers, and what impacts the fluctuations we’re always seeing? There are 3 main factors: 

Scarcity, utility and perceived value. 

So let’s break it down. 

Scarcity

Take Bitcoin for example. Instead of looking at it like money, think of it like Gold.

Gold is just a normal metal. But what separates it from the other, less valuable metals is that it’s a scarce commodity. Meaning there is only a limited amount of it to be mined on the planet. 

The same goes for Bitcoin. It’s essentially digital Gold.

When it comes to certain cryptocurrency tokens like Bitcoin, it’s capped. Meaning that when Satoshi created Bitcoin, he only created 21 million of them that could be mined and sold.

Limited edition assets or scarcity around an asset is a huge part of how people dictate value. 

Utility

Currencies are valued for their applications – where you can use them or the freedom and opportunities they give you. For example, Bitcoin is useful only for the Bitcoin Blockchain, and Ethereum is only useful on the Ethereum blockchain. 

Not only this, but certain tokens can be used for more than just exchanging money. There are coins that are specially created to be used in DAOs (organizations that exist on the blockchain) to represent your membership to the group and earn you voting rights.

Access is a huge part of why people value certain tokens over others. Another example is with Ethereum and NFTs. Owning Ethereum gives you access to the Ethereum blockchain – which has the largest marketplace of NFTs. So without it, you wouldn’t have access to all of these assets that could potentially earn you a lot of money down the line.

Why Crypto Keeps Fluctuating

So now that we’ve established where the main value of cryptocurrency tokens comes from – what keeps influencing it to change everyday? Why is it so volatile, and how can you start to predict trends? 

There are a few different factors that can influence this. First of all, it can happen from investors buying a token at a low price, and selling it at a higher one. This will then influence the overall crypto market. 

Accessibility of a coin can also influence the price. For example, the more a coin is mined, the more difficult or more available it becomes. 

This is the same for utility – the more uses a coin has the more valuable it becomes. 

But another large factor that influences how crypto gains value is how popular it is in the media. 

The more coverage, hype and popularity a token gets, the more people want it, and the more value we assign to it

It’s clear that the worth of anything is generally rooted in perception. Simple ideas can become valued if they align with our own, personal values – and that’s also something that has greatly impacted the worth of crypto. 

For example, people have valued crypto and invested a lot of money into it out of pure spite, because they see it as a valuable symbol of rebellion – like we saw with the Dogecoin Millionaire and his hefty investment into crypto after losing everything in Gamestop’s infamous crash.

The main value that crypto aligns with is the promoting individual ownership and power. People are sick and tired of centralized systems. They’re tired of corporations thriving while the rest of the world is starving. They are tired of not holding ownership over what is theirs – and cryptocurrency and blockchain are fixing that problem. 

As this ideology grows, so does the perceived value and revolutionary status that crypto holds in the eyes of our communities – and it won’t be slowing down anytime soon.

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