Why These Crypto Critics Are Dead Wrong
By Martin D. Weiss, PhD and Juan M. Villaverde on February 16, 2018
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Never in our lifetimes have we seen such passion on a blog!
All thanks to the fabulous profits — and dramatic intermediate declines — in a single, unique, new kind of investment vehicle, cryptocurrencies!
Some crypto critics, especially government officials, would have you believe that cryptocurrencies “have no intrinsic value and should go to zero.”
Bah! We’re so darn tired of hearing this argument we decided to refute it once and for all — right here and now.
First, for so-called economic experts who profess such theories, it’s time to go back to Economics 101. What defines most of the value in most forms of money — whether cowry shells, paper greenbacks or digital currency — is not its so-called “intrinsic value.”
Heck, if that were the case, a hundred-dollar bill would be worth less than a cent and a $10-million bank account would be worth only the half-second it takes to delete it.
Unless you’re talking about precious metal coins, any official discussion of so-called intrinsic value is nothing more than a smelly smokescreen. Anyone making that argument should know darn well that what truly gives value to modern-day money is acceptance and usage.
Let us spell that out …
A currency will have value if it is accepted and used by a large community of individuals, businesses, financial institutions, governments and others.
Is that everything? No. In addition, a currency should have some sort of foundational application that gets the ball rolling — a starting point from which an entire economy can be built. We call that a “value anchor.”
Consider fiat money like the British pound or the U.S. dollar, for example.
Care to guess what the foundational application is? Historically it’s been the fact that you have to use the currency to pay the tax man.
That’s right. It’s generally agreed that the original value anchor for a government’s fiat money is the payment of government taxes.
It makes sense: Almost all adult citizens of a nation are required to pay taxes in some form. Further, the volume of tax revenues is more or less correlated to the pace of economic activity.
So indirectly, the value of a currency is anchored to the economic activity of the people who use it.
Isn’t this why economists say a national currency is backed by the productive capacity of the nation? Isn’t this why foreign exchange traders like to buy U.S. dollars when the U.S. economy is growing … or Australian dollars when commodities are booming?
What About Crypto?
Crypto detractors would have you believe that, unlike fiat money, no one is required to use cryptocurrencies.
Here’s what they’re missing …
First, although crypto is still younger and more volatile than the dollar or the pound, it’s already far more advanced in terms of anonymity, ownership and decentralization.
For the first time in modern history, individuals can truly own and fully control their own wealth without relying on — or being beholden to — any central authority.
Second, if you want to understand the real value of crypto, you have to look beyond just payment processing. You need to understand …
Why Cryptocurrencies are
MUCH MORE Than “Currency”
Most people have gotten into the habit of using the word “currency” for all cryptos. But what the critics seem oblivious to is the fact that crypto is really much more than that.
In fact, for most second- and third-generation cryptocurrency technologies, the term “currency” doesn’t really apply anymore. They are really crypto-platforms that are creating virtual economies and, potentially, even virtual nations.
Take Ethereum, for example, a platform capable of supporting a whole series of different functions.
You can use Ethereum to raise money with Initial Coin Offerings (ICOs). And unlike IPOs, which are restricted primarily to enterprises in advanced nations with relatively big budgets, ICOs are used by projects of any size anywhere in the world.
In fact, Ethereum is the basis for an entire economic system, called a “token economy.” And unlike the traditional economy, it is borderless, permissionless, decentralized.
Let’s say a gold mine decides to issue tokens that can be redeemed for gold. And let’s say these tokens are created and exchanged with Ether. In other words, they are built on the Ethereum platform.
What does that mean? Well, it means that the Ether token is backed by gold (at least partially and indirectly).
And let’s say thousands of similar projects start running on top of the same crypto-platform. It could be commodities, services, companies, governments, you name it.
In fact, if properly designed, a crypto-platform is capable of running virtually anything.
ICON for instance is being used by financial services companies, universities, even hospitals. All based on the same technology. All with their ICX token, used as the glue that ties everyone and everything together.
Why? Because ICX is THE standard in the ICON economy.
No, not everyone in any particular country on the planet is required to use ICX. But remember, cryptocurrencies are borderless. What matters is that everyone who wants to live and operate inside the ICON economy WILL likely be required to use ICX in some shape or form.
Ditto for cryptocurrencies like NEO, Ark, EOS, Cardano and many others. Each has its own laws and regulations, its own service providers, its own community, its own citizens. Thus …
It’s about time that the critics wake up to what’s really happening in the crypto world: Instead of thinking about these platforms as mere payment networks, they must be viewed as virtual nations with ties to the real economic world that anchor their value.
Suppose thousands of businesses join this virtual nation. Suppose it grows to such size and scale that you can use its tokens to acquire virtually everything you may need for your everyday life.
To buy shares in private companies listed exclusively on its exchange.
To book a hotel room or buy a condo.
To buy groceries directly from producers with no intermediaries.
Even to buy gold.
Now, could the critics still say that the cryptocurrency has no backing, no intrinsic value, no anchor to the real world?
Sound far-fetched? Actually, all the examples above are real projects being deployed today on the Ethereum blockchain.
And real people are being drawn to these kinds of crypto-economies in droves.
Because they see a level playing field, a platform that’s free from the bureaucracy and geographic limitations of nation-states.
All with no language, cultural, political or geographic restrictions! All neutral, borderless, decentralized, permissionless and censorship-resistant.
So if anyone tries to tell you that “crypto is going to zero,” just hang up the phone or show them to the door.
Then always remember: Cryptocurrency is not just currency. It’s also a platform for a virtual economy that’s directly linked to the real world.
And that’s the true meaning of real value.
Now we want to hear what you think. Do you believe cryptocurrencies have an intrinsic value? If so, what’s your reasoning?
Or are you firmly entrenched in the “Monopoly money” camp?
Let us know your thoughts in the comment section below. Then, join the debates with hundreds of other crypto enthusiasts and skeptics!
Best,
Martin and Juan