Why do Cryptocurrencies have value?

March 4, 2014 in Dogecoin


Why do cryptocurrencies (0's and 1's in my computer) have any value, and why would people actually pay money for them? Theres a short answer and a long answer. I'll go over both of them

SHORT ANSWER:

Because people are willing to trade real-world goods for it.

LONG ANSWER:

To answer this question we first have to ask why any currencies have value (sorry if this gets philosophical). Because they're actually valuable? Because governments say they do? What makes hunks of metal, pieces of paper, and bytes on your computer valuable?

The answer goes way back to the origin of currencies. Currencies were created because people needed a way to exchange goods (food, water, materials) in an indirect way. This brings me to another point: Currencies don't really have value. The value lies in the goods that can be exchanged for them. They have value because people are willing to accept it for goods and services, not necessarily because they are valuable (Except gold and silver coins, which are really only valuable because they are rare. Its not like owning gold actually helps you do useful things in the world. But I digress). In our modern world it seems that many people think that the only form of currency can be those issued and backed by governments. Cryptocurrencies are beginning to disrupt this.

Cryptocurrencies are disruptive to the traditional process of currencies because they are decentralized. The lack of a central agency has pros and cons. One of the pros is that you don't have to rely on that one entity to verify and assign value to a currency. The value is with the people and the goods they trade for it. On the other hand, the lack of a central entity might be troubling because your computer, and its wallet files, could possibly (not likely if you're careful) be hacked and stolen. If this happens there's no government to run to, to dispute it. Once a transaction is made, its forever locked into the blockchain.

So now we get to the point of why cryptos have value. Firstly it is because people are willing to trade useful items for them.(check out?/r/dogemarket?to see some of this in action). And the second reason, which sets it apart from most other currencies, is because miners are invested in it. A miner, who spends lots of money on a mining rigs with like 4 graphics cards is invested. Their mining rig (and the electricity that they use running it) are expenses and investments in a little home business that they are running.

So in conclusion, the lack of a central agency controlling the currency, and the capital people have invested in it, puts its control in the hands (paws, if you're a shibe) of the people. With complete control over the currency we use, it is up to us to give it value. The unanimous acceptance of a currency is what will allow it to continue to thrive, and Dogecoin has just that.

Check back tommorrow for an in depth explanation of the markets. How they work, market manipulation, and what you can do to help!