Baige study notes

In short, the value of a cryptocurrency comes from what it offers to the market. It's that simple.

Many people wonder where the value of cryptocurrencies comes from, especially since they are not physically backed like gold.

Traditionally, fiat currencies like the U.S. dollar were backed by metal, but this is no longer the case. Now, their value comes from the fiat of a government and the trust people have in that government.

Cryptocurrencies offer an alternative to the traditional financial system. Many people now view them as a store of value or investment opportunity.

For example, much of the value of Bitcoin comes from its scarcity. The supply of Bitcoin is limited, and as demand for it increases, the price will rise.

Of course, there is no guarantee that demand will increase. However, this is enough to make Bitcoin a compelling long-term investment.

For example, Bitcoin’s scarce properties contrast sharply with fiat currencies, which are prone to inflation.

Besides scarcity...

The utility of a cryptocurrency — what you can do with it — is also a key factor in its value. Bitcoin can also be used to transfer value internationally without a bank or to purchase goods and services. This functionality has intrinsic value.

For less than 50 cents, I can send $1 billion worth of Bitcoin to anyone in the world.

Bitcoin’s architecture is inherently resistant to censorship, which is increasingly important in today’s digital age. This property enhances Bitcoin’s appeal as a powerful medium for wealth preservation, especially in repressive regimes or unstable economic environments.

The more widespread the adoption and the stronger the network, the greater the utility and value of the cryptocurrency.

Other cryptocurrencies, like Ethereum, offer different types of functional utility.

Ethereum’s blockchain allows for the creation of decentralized applications and smart contracts, which have almost unlimited potential uses.

If we envision that the global economy will continue to move online, it’s not hard to imagine that the internet will require its own monetary infrastructure.

Learn more about this in the section titled “What does the future of cryptocurrency look like?”

It is important to note that current cryptocurrency prices are largely speculative. The technology and its potential applications are still developing, so a lot of value is based on future expectations.

But as we’ve often said, this technology has the potential to upgrade our entire financial system to the space age, representing perhaps the biggest asymmetric bet in history.