Prologue: Company-produced educational materials often make for a fascinating read; particularly in emerging industries, such as the crypto asset space. Aside from their informational components, educational pieces tend to be an interesting hybrid of educational document + marketing piece + propaganda/manifesto. This kind of stylistic integration appears to be a standard practice among content marketers in this space.
Although cryptocurrencies seem to be deeply embedded within the consciousness of the mainstream markets, questions and debates regarding the intrinsic value of cryptocurrencies remain.
The typical arguments for or against cryptocurrency values are by now quite familiar, repetitive, and perhaps a bit worn out.
While researching Lisk’s cryptocurrency rebranding and relaunch, I came across their Lisk Academy page, where I found a basic tutorial on blockchain, a section in which they explain their position on the value of cryptocurrencies.
The following passages are taken from the segment in their tutorial titled “Where Do Cryptocurrencies Get their Value From?” My comments are in bullet point format.
This article is more like two articles in one: it’s about a) the value of cryptocurrencies according to Lisk; and b) the values underlying Lisk’s interpretation of cryptocurrency’s value.
One of the most common questions in regard to cryptocurrencies is…where they get their value from.
The perception is that somehow, they have less value because they cannot be held in physical form, despite the fact that cash is becoming obsolete regardless.
- It’s true that the intangibility of cryptocurrency is problematic for many people. And yes, this may significantly reduce their value, particularly in situations wherein a user cannot easily access their crypto assets (e.g. when electronic infrastructure is compromised by a natural disaster, technology glitch, or a cyberhack).
- The second comment, however, shifts the argument to a different level: cryptocurrencies are intangible but “real,” while cash, which is tangible, has a value that is intangible, and one whose existence is about to disappear.
- It’s too easy to point out that by claiming this finality—the death of cash—Lisk Academy claims to have insight into a future that has already been determined. Of course, I say this jokingly. This is pure manifesto-speak…and it’s entertaining because it appears in an “education piece” (“re-education”?).
Or that they are not “backed” by anything despite the fact that fiat currencies are no longer backed by physical commodities either.
- This is true, and it’s strange how such knowledge (that many people seem to possess) barely has an impact on people’s perception of money; the lack of commodity-backing has become a normalized and accepted part of our culture…just like paying exorbitant taxes.
The main difference between cryptocurrencies and fiat currencies is in that they [cryptocurrencies] are not supported by governments in the same way fiat currencies are.
- This comparison is perhaps one of the most important statements in the entire document. Why? Investors’ trust toward cryptocurrencies seem to hinge on whether they will be “regulated” or “accepted” by a government entity. Such a notion goes against the very purpose of having cryptocurrencies at all—P2P transactions, free from government and central bank intervention, manipulation, and taxation.
Despite the nature of money evolving to no longer having its value backed by physical commodities, like gold in a national bank, they are still supported by the government that issued them.
- This subtle figurative description, the “nature of money evolving,” is somewhat funny, considering how seriously it presents itself. Claiming insight into the natural evolution of a thing, as if that thing were an “organic” entity subject to the laws of both nature and evolution, is to claim a universal; almost like a religious statement.
- It’s a stylistic mechanism, one that aims to advance a particular sentiment. In other words, what’s important is not its informational content as much as its affect.
As a result, the value of fiat currencies is generally based on the stability of the government that issued that currencies.
- Important point. Again, this supports the reason why crypto developers and enthusiasts find such a development to be necessary.
- As I covered in an earlier post, the promissory value—the “promise”—behind fiat currency is partly the representation of government stability, function, and sovereignty.
The value of cryptocurrencies derives from the network upon which they are built.
- This statement is bigger, bolder, and more “bad-a*s” than it seems. It basically says that the functionality of money need not succumb the hierarchical mechanisms imposed on it by centralizing entities. Money is not a concept to be captured and confined to a specific object. Instead, money is a concept that can embody objects—material or virtual—based on a consensus of preference, function, and demand; the perception of money converted from a hierarchical “tree” structure into a more “rhizomatic” model; from a state-issued object to a “nomadic” phenomenon.
This is further influenced by a variety of factors, such as:
Supply and demand: For example, there will only ever be 21 million Bitcoins, released at a steady rate, meaning inflation should not affect the value of the currency, assuming a consistent demand exists. Although such a system is not employed by all cryptocurrencies.
Price of Bitcoin: all other cryptocurrencies are based on and pinned to the price of Bitcoin, meaning changes in Bitcoin price can affect other currencies.
Energy/electricity required to validate transactions and mine coins: Proof-of-Work, the consensus protocol used by Bitcoin, consumes a lot of electricity, whereas Delegated-Proof-of-Stake, used by Lisk, consumes considerably less, which has a factor on the price.
Difficulty level: Similarly to the electricity required, the difficulty level faced by miners in securing a cryptocurrencies network can affect the price of each token.
Public perception: how investors perceive the blockchain space as well as each individual currency will directly affect its price. For example, if media reports positively on the blockchain space then prices can increase. Similarly, if a cryptocurrency is a caught up in a scandal, the price of that token will fall.
Large investors: an investor holding a considerable amount of a cryptocurrency and deciding to sell it all at a low price will result in the price of that currency dropping considerably. Such investors are sometimes referred to as “whales” as their investments have ripple effects on the rest of the market.
Utility of the currency or product: what product is the company that issued the currency providing and is it useful? Where can the currency can be spent? What does the currency allow you to do? All of these factors affect the price of a currency.
Due to all of these factors the price of cryptocurrencies can be volatile, which is why some investors regard them as opportunities to make money. Whereas the value of a dollar or euro generally tends to remain relatively stable this is not the case with cryptocurrencies.
- Foreign exchange is a volatile market (though not as volatile as cryptocurrencies). Still, the content writer here appears to be conflating the idea of short-term trading with longer term investing.
- Overall this is a good list of arguments in favor of the underlying value of cryptos.
- It is, however, missing one crucial point: some cryptocurrencies have a more integrative role in the functionality of their underlying platforms; in other words, certain tokens that correspond with a given blockchain actually have a necessary function within that blockchain (e.g. TRON, for example, plans to replace the use of currency with their tokens for their gaming applications, establishing a more integrative relation between platform and token).
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