How is that cryptocurrency has economic value?

Updated: May 10, 2021

The answer is simple: cryptocoins have value because people assume they are valuable. As oddly as this sounds, this is the basic reason.There are other reasons too. Without going into technical details, we can name a few:
  • They allow to buy goods and services;

  • They are “awarded” as a payment for work;

  • They are scarce;

  • They are fungible;

  • They can be an investment;

  • They are necessary to run apps on the blockchain;

  • They can be purchased with fiat and viceversa.


Let’s go through these reasons in detail:
  • Crypto has value because they allow to buy goods and services

Cryptocoins can be used to make payment and purchases, just like regular money. This is one of their best known characteristics. Nowadays, you can use crypto in Paypal, Visa, and Mastercard (depending on the region you are), just to name a few. There are other uses within the DeFi world, for example Ether (ETH) can be used as collateral for crypto loans.
  • They have value because are “awarded” as a payment for work

We have talked about the work of miners. They receive crypto coins as payments for their services to the blockchain. This characteristic -the payment- was born together with the proposal of the idea of crypto.Also, speaking of other ways of earning rewards, it’s possible to receive a reward for “staking” the crypto, if the protocols of the coin allows it.
  • Crypto are valuable because are scarce

As everything valuable, there is a limited amount of cryptocoins in circulation. They are increasingly harder to generate, to limit their amount. Besides, Bitcoin protocol famously established that there will ever be just 21 million BTC. The fact that they are scarce, contribute to keep their value going up.
  • Crypto are fungible

Cryptocoins, like regular (fiat) coins, are interchangeable. It doesn’t matter which one you use to make a purchase, the coins have the same value. You could use the cryptocoins you have in your wallet or the one at the exchange with the same result: to buy the item you want. Cryptocoins represent value just like fiat.
  • Crypto can be an investment

Even though they are highly volatile, the overall trend is to increase their value over time. Therefore, many use crypto coins as a form of long term investment.
  • Crypto are necessary to run applications on the blockchain

Apps built on top of the blockchain, need crypto to run their transactions/operations. If you want to use these services (decentralised apps) you need to pay with crypto.
  • Crypto can be purchased with fiat and viceversa

If none of the previous reasons was convincing enough about the value of crypto, here we have a last one: you can buy fiat or regular money using cryptocurrency. Just as it’s possible to buy dollars using euros or pesos, it is possible to buy dollars using crypto coins. In fact, you could buy Euros, Australian dollars, or any other currency that the exchange supports, using crypto coins. Of course, the viceversa is also true: you can buy cryptocurrency using fiat.
 
All these reasons lead us back to our first statement. Cryptocurrency is valuable and can be used in all these forms, because most people assume they have value, and the market seems to agree. Similarly to when pieces of paper started representing value, criptocoins are opening a path as digital currency… besides many other real-world applications.

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