Luis Pazos 
This is a question often asked about cryptocurrency – and it’s a fair one. Unlike physical commodities, crypto doesn’t have a tangible presence. Plus, it’s not issued by banks or governments, so no official entity backs its value. So, why does crypto have any value at all?
We could ask the same question about any asset or even national currency. The answer is the same: cryptos, like any asset, get their value from what people are willing to pay for them. Recently, people have been paying a lot for popular cryptos. But even if they do, how much is it really worth, considering cryptocurrency has only existed for about a dozen years?
If you’re thinking of investing in cryptocurrency – or already are – you need to seriously consider this question. It’s crucial to know what you’re actually putting your money into.
Why Traditional Currencies Have Value
Currencies like the US dollar, euro, yen, and British pound have value for much the same reasons as other assets do, but the value of national currencies is more structured. Historically, bartering was common – swapping one valuable item for another. Over time, certain commodities like gold, silver, and copper became recognized as mediums of exchange due to their rarity and ease of transport. These precious metals were also valued as a store of wealth, similar to a bank account today.
Although barter was effective for many years, it suited less complex economies. As global economies industrialized and people became employees rather than producers, bartering became impractical, leading to the use of paper money. Initially, paper money represented specific amounts of gold or silver, but as the 20th century progressed and the demand for government services grew, countries moved towards national currencies. This transition required public acceptance, which had already been established as these currencies had circulated for decades.
Today, national currencies are used without much thought. However, each nation has its own currency, complicating international transactions. This issue is largely resolved by the US dollar, which serves as the primary international reserve currency due to the size of the US economy and its financial markets.
What Makes Crypto Different From Traditional Currency?
Crypto is still early in its journey to becoming a widely accepted currency. Unlike traditional currencies, you can’t yet use crypto for everyday transactions like buying groceries or paying taxes. Its value derives from a limited acceptance for payments and the hopeful speculation that it will become a standard form of exchange in the future. Whether this will happen depends on various factors, including government regulations.
What Crypto Already Has in Common With Traditional Currencies
If crypto does gain widespread acceptance, it has the potential to evolve into a global currency. This wouldn’t be unprecedented. Human history has seen transitions from bartering to paper and then electronic money. The current reliance on electronic money might even ease the acceptance of cryptocurrency. Crypto has some of the core attributes of money: it’s portable, can be accepted for transactions, has a recognized value (though it fluctuates), and is limited in quantity. For example, Bitcoin has a maximum limit of 21 million coins, most of which have already been mined, leading to potential future scarcity.
Why Is Bitcoin More Valuable Than Other Cryptos?
Bitcoin stands out among thousands of cryptocurrencies. It has the highest market value, overshadowing others like Ethereum. Bitcoin’s dominance is partly due to its head start – it was the first crypto, created in 2009, and has had time to gain acceptance. Public familiarity with Bitcoin is so high that the term “cryptocurrency” is often synonymous with it. Bitcoin’s recognition continues to grow, with its price now quoted alongside traditional financial assets like stocks and bonds. Given its leading position and recognition, Bitcoin is likely to remain a principal player in the crypto world.
Who Regulates Crypto?
In short, no one. This lack of regulation is a double-edged sword: it’s part of what makes crypto valuable but is also where the risks lie. While government authorities don’t regulate crypto, the blockchain system where crypto is stored is monitored with specific order, making the usual regulations somewhat unnecessary.
What Are Crypto Exchanges?
Crypto exchanges are online platforms where you can buy, store, and sell digital assets like cryptocurrency and NFTs (unique digital art). These exchanges operate solely online, with no physical branches. Major crypto exchanges not only facilitate trading but also offer services like high-interest crypto accounts and debit cards.
Where to Invest in Crypto
Crypto can mainly be bought, held, and sold through crypto exchanges, as most banks and investment brokers don’t offer crypto options. Here are a few popular ones:
- Coinbase: A large crypto exchange offering trading in 70 cryptocurrencies. They charge fees based on trade volume and offer additional services like a Visa debit card.
- eToro: A global investment platform providing crypto trading in 27 cryptocurrencies. They also offer educational tools like virtual trading accounts.
- Robinhood: While not a dedicated crypto exchange, Robinhood is a popular investment app offering commission-free trading in several cryptocurrencies.
Final Thoughts on Why Crypto Is Valuable
Though it lacks physical substance and institutional backing, crypto’s value, like other assets, depends on what people are willing to pay. As traditional currencies derive value from public acceptance, so too does crypto. Bitcoin leads with significant recognition, and as crypto evolves and gains acceptance, it moves towards potential global currency status. Despite the current uncertainties, crypto’s unique characteristics will continue to shape its value.
