Every time the value of cryptocurrency rises, we ask a few questions and skeptical remarks about it, how and why it determines how much Bitcoin and other cryptocurrency will be worth. The same thing happens during most conversation, whenever the investment side of cryptocurrency is mentioned.
Warren Buffett, one of the most successful investors ever, openly criticizes Bitcoin, declaring it worthless. In his opinion, the reason is that there is no company behind Bitcoin, there is no creation of additional value and there are no technical parameters for assessing success. Of course, Buffett is used to invest in companies, and according to his own admission, he never invests in something that he doesn't understand. Modern technologies are not his specialty. But average observers (and sometimes not so experienced investors) seem to almost the same attitude toward cryptocurrency values. Therefore, the most common objection is the one that says that is a fictional value and that there is nothing material behind it therefore nothing really valuable. The wiser among such people stay away from dubious investments, and those who are more prone to risk play the game.
Material and other values
The most common confusion about the term "value" is its identification with something material. For example, people tend to pay dearly for a material item, but are reluctant to pay for education and knowledge. The modern world strongly denies them. In this era, information has the greatest value, and that mean knowledge. Knowledge can always create new material value, while reverse is not worth it. Material items can be lost, damaged or destroyed. On the other hand, once acquired, knowledge is yours forever and no one can take it away from you.
Cryptocurrencies are not material. They are electronic, so they are in a space between matter and information. In the light of understanding advantages of intangible values over material ones, that is a plus, not a minus.
To declare something worthless just because it is not entirely tangible and material is contrary to what we know about life - it is contrary to the very notion of value. I could add that for a mature person, immaterial, even spiritual values, always have an advantage over material ones. Insisting on the exclusive overlap of value with material objects is a sign of a mentality that belongs to some past times in which knowledge wasn't valued enough.
Who determines the value of an (im) material object?
One of the criticisms of cryptocurrencies is that they have no value for in themselves. All right, let's think: which material object has value in itself?
How much is hammer worth when you need a saw?
How much is car worth when you want to cross the sea?
How much is a bottle of water worth when you are lost in the desert?
I hope the questions clearly point to the answers: the value of a material object is determined by its use.
But let's think further: one of the most valuable material possessions is - gold. Gold is also favorite investment of classic investors.
But wait! Isn't that contrary to determining the value according to use? According to that criterion, gold isn't worth anything. You can't eat it, or drink it, you can't do anything with it except pretend to be important just because you own it. So where does golden value come from?
The answer could shake your value system. Gold has value because people believe in it. If guided only by use (technical value indicators such as Buffett's investment analysis), gold has value close to zero because it is used only in minor quantities in the form of industrial gold. The demand for it will not grow, nothing new or revolutionary will happen to it and in fact, we could do quite well without it.
Value is a subjective category
People who show lack of understanding of cryptocurrencies and their value actually show a lack of understanding of the entire financial system, especially the capital and stock markets.
Tesla shares were once worth so much that Tesla as a company suddenly became the largest car manufacturer of all time. Tesla is worth more than Toyota, General Motors, and other giants of car industry. How is that possible, when the sales of Tesla are minor percentage in relation to the sales of other cars?
Who determined the value of Tesla's shares?
No one has determined it on their own, nor is there a real justification for it except - expectation. Yes, investors expectations have determined that Tesla is currently the largest car manufacturer in the world.
Does anyone object to this? Does anyone declare Tesla a fraud? Of course not. Expectation is subjective category, and it represents the force that determines value. Whether investors are right when they expect something like this, or not, it will show the future.
The value of immutability
Cryptocurrencies are not stocks - there is no technical analysis, no future or planned production or market growth (although this can also be done within certain specific parameters). Are they like gold then?
Some of them, for example, Bitcoin is slowly being profiled as crypto gold. One of special features of gold is that it doesn't enter into chemical reactions with other elements, especially not with oxygen (it doesn't rust). Gold stays away for everything else and generally doesn't depend on other elements.
Bitcoin is similar to gold in that sense - it doesn't depend on other factors. It is cryptographically protected from any interference and influence. It is as it is, and there is no change. What Warren Buffett criticizes (lack of production, market influence, etc.) is not a flaw but a significance, an advantage that puts Bitcoin in the position of electronic cryptocurrency.
Limited availability value
Another comparison with gold: Bitcoin has (will be) 21 million. No Bitcoin more than that. So, the availability of Bitcoin is limited (unlike the dollar, euro or other currencies whose amount can increase indefinitely). Provided that completely immaterial factors are maintained (trust, expectation and everything else that gives value to everything, not only material objects), its value can grow to unimaginable heights. His maximum was almost twenty thousand, so he fell back to three thousand. Now it is growing, and expectations go up to a hundred thousand or even million.
Conclusion
The value of cryptocurrency is not determined individually by anyone. It is determined by people's expectation (similar to the value of gold or stocks).
Cryptocurrencies are mostly decentralized. They can serve as money (they are intended for that, in fact), but they are mostly known as an investment tool. Due to the variable value (expectation rise and fall sharply), they have become notorious.
The fact that they are intangible does not diminish their potential value. Moreover, unlike material objects (gold for example) their transport is easy and fast. The advantages are obvious to them, and survival as a means of preserving value depends exclusively on the movement of human attention. However, don't forget that a value or everything else depends on it.
Source: https://www.adriankezele.com/kriptorevolucija/zasto-nesto-vrijedi/
