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Why Cryptocurrency Will Never Die

By February 7, 2018 No Comments

Spewing Venom   

Is cryptocurrency slowly dying?  That's a prominent question on many investors' minds as they face the onslaught of venomous vitriol from governments and bankers.

On the contrary, there is a rational, academic, research-based argument that the intrinsic value of crypto exceeds that of not only trust-based standard currency but also the utility value of the individual coins themselves.

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The reason is simple: crypto is not just another asset - its intrinsic value emerges from properties that never existed before and were even thought impossible by many - digital ownership, digital scarcity, and the fusion of medium and method of exchange into a single entity.

Owning It

What's so great about digital ownership?  Isn't it pretty much the same as my online bank account, VISA, and PayPal, with a bunch of fancy encryption algorithms mixed in?  Far from it.  Although this is probably the most common misconception about cryptocurrency, which the general manager of the Bank for International Settlements called "the mathematical equivalent of mega-sudokus".

It's tough to stay optimistic when bankers and governments are spewing venom, but there are rational, research-based fundamental properties that give cryptocurrency intrinsic value.

It's tough to stay optimistic when bankers and governments are spewing venom, but there are rational, research-based fundamental properties that give cryptocurrency intrinsic value.

Intangible Assets

The concept of owning an intangible asset is not new - think about a song or an idea - we've had patent and copyright laws for hundreds of years.  We call cryptocurrency tokens like bitcoin "coins", but you can't put them in your pocket or stack them in a safe because they don't actually exist.

While it's true that what does exist is cryptographic math and computer code - it's what this code represents that makes it truly revolutionary.  A cryptocurrency token is a chain of cryptographically linked transactions woven throughout the blockchain that can be unlocked only by the private key of a single person - the owner of that transaction chain.

That's exactly what bitcoin and other cryptos are - transaction chains.  The reason this is such a big deal is that you can prove, and anyone can verify, that you own a "coin", or any other digital asset, with a private key linked cryptographically to a public address, that makes you the only legit verifiable owner of those assets.

A cryptocurrency is intangible - it exists as a chain of cryptographically linked transactions woven securely, in  a mathematically verifiable pattern throughout the blockchain.

A cryptocurrency is intangible - it exists only as a chain of cryptographically linked transactions woven securely, in a mathematically verifiable pattern, throughout the blockchain.

Digital Scarcity

This brings us to the second component of crypto's emergent intrinsic value - digital scarcity.

A hundred-dollar bill is a piece of paper that can be duplicated.  Do it a million times and you have a hundred million dollars.  But duplicate a cryptocurrency and guess what you have?  The same unique cryptocurrency.  Do it a million times and all you have is still the same cryptocurrency.

How is that possible?  It has to do with the architecture of the blockchain.  Each transaction chain, or each "coin", has a unique origin and history of ownership, which continues to grow each time it is "spent", or passed from one owner to another.  Imagine a hundred-dollar bill with the name of every owner stretching back to the printing press at the government mint.  The blockchain maintains the integrity of this history using cryptography that makes it virtually impossible to corrupt in any way.   Copies of this history are distributed among millions of computers throughout the network, so they exist everywhere and nowhere in particular, and they all represent the exact same unique digital asset, owned by a single individual.

You can duplicate a hundred-dollar bill and you'll have two hundred-dollar bills.  Guess what you'll have if you duplicate a cryptocurrency?  You'll get the exact same cryptocurrency.

You can duplicate a hundred-dollar bill and you'll have two hundred-dollar bills. Guess what you'll have if you duplicate a cryptocurrency? The exact same cryptocurrency.

Econ 101

Basic economics teaches us that value emerges from 2 properties - scarcity and utility.  This is where crypto's unique third property plays a major role - the fusion of medium and method of exchange.

Most people think of the utility value of a coin as what it can be used for - buying a mochaccino, transferring money to France - and that is an important component of every cryptocurrency's utility value.  But there is another equally important component that gives every cryptocurrency utility value beyond its use cases and adoption.

The Medium Is The Method

At The 2018 North American Bitcoin Conference in Miami, Jeffrey Tucker of American Institute for Economic Research pointed out that every cryptocurrency has value beyond the coin itself because it provides a service we never imagined was possible - the fusion of a currency with its own payment system.

Remember when mp3 compression for music was invented?  Suddenly songs were digital assets that could be infinitely copied, so they no longer had scarcity, ownership, or value.

Remember when mp3 compression for music was invented? Suddenly songs were digital assets that could be infinitely copied, so they no longer had scarcity, ownership, or value.

Dollars are paper currency, and their payment system is completely separate from the bills themselves - the network of banks, credit cards, or PayPal.  But remember that a bitcoin only exists as a chain of transactions woven through the blockchain.  For cryptocurrency the transaction is the coin and the coin is the transaction.  The medium of exchange and the method of exchange are one and the same.

According to Tucker, we've been stuck with the "Model T" of money for hundreds of years - so this is truly a revolutionary advance. And not just in money.  Blockchain allows us to tokenize any asset, or any bundle of information, and make it unique, scarce, securely owned by a verifiable owner, and transferable anywhere to anyone within its own self-sustaining, self regulating, and self-verifying exchange network, with no intermediary required.

So next time you hear someone say cryptocurrency is intangible or it has no value you can reply "actually it has significant intrinsic value and here are 3 reasons why..."


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