August 20, 2020

Reasons why Cryptocurrency have value

Origin of the money

The diversification of activities is one of the motors that promote the progress of human society, that is, everyone can dedicate themselves to the things they like, but they cannot produce everything they need to consume. For this to be possible, there must be a mechanism for the exchange of goods.

Bartering played an important role in primitive society. However, this is a very limited mechanism, some transactions were complicated. How many eggs is a horse worth?

Naturally, commodity money appeared to solve this type of problem, which was later replaced by coins, each culture made them of a different material, but mostly of a scarce material. At the same time that the coin appeared, so did the first bankers who wrote the amount deposited on a paper that would serve to reclaim the coins deposited and thus was born the paper money.

Characteristics of money

Throughout history, money has taken different forms, represented by salt, grain, cocoa, stone, metal, paper and other things. Each culture used different forms that were accepted as money. These have changed with the development of society’s needs. Any object could represent money, but it must have some basic characteristics. The same value for all, that is easily transportable, scarce, divisible and durable.

First, it must be a scarce resource, difficult to obtain. If you use an easily available resource to represent money, no one will be willing to work for it. It must be interchangeable; one currency must have the same attributes and value as another so that it can be used to exchange goods and services. Equally important, it must be divisible so that you can pay for various goods and services. In addition, it must be durable to maintain its value over time (food cannot represent money). Finally, it must be easy to transport so that everyone can use it in everyday life.

Value of money

The various expressions of money have no value because of their practical use. None of them has the capacity to satisfy basic needs, so if you have a lot of money in the desert, it will be useless.

The value of money depends on the consensus of the society around it. If all people accept such a representation of money and agree to work and exchange goods for it, then this representation has value.

Generally, the consensus is based on the individual’s trust in governments or society’s administrators, therefore, the issue of money is usually a monopoly of these. Usually in today’s society the states are the ones that define the legal tender and are the only ones that have the right to issue it.

Why are criptocurreny valuable?

The digital information of the crypto currencies satisfies all the characteristics of the money needs, but the most important characteristic is the shortage. From a technical point of view, a great achievement of Bitcoin was to create a digital scarcity, which has resulted in a “digital object” that can represent money. All the successor crypto currencies inherited this scarcity quality.

However, as we all know, this is not enough. Bitcoin also achieved an unprecedented social achievement, establishing a consensus of value around a certain form of currency that no state or institution provides or controls.

It has also managed to eliminate the middleman and has an intrinsic value since there is a cost associated with mining it, very large investments are made to mine Bitcoin, the minimum value will depend on the cost of electricity and the level of difficulty of mining that fluctuates, but in the long term the difficulty increases and with it the cost of mining it.

One of the first recorded transactions of Bitcoin was that someone bought two pizzas for 10,000 BTC. Since that day, many things have changed, but the principle is the same. We share the illusion that these digital objects have value, and we are willing to exchange our work or our valuables for them.