4 Reasons Why Crypto is Valuable

Update 20 Oct 2021 ‚ÄĘ Reading Time 6 Minute
Image 4 Reasons Why Crypto is Valuable
Reading Time: 6 minutes

The popularity of crypto assets as investment assets is now increasing. Investors are starting to feel confident about adding crypto to their investment portfolios.The promising returns are one of the reasons why some investors buy crypto assets. However, some people are still confused and wonder how crypto can have value and become one of the investment assets. Therefore, we will explore some of the reasons why crypto assets have value and can be used as investment assets.

Article Summary

  • ūüö® Scarcity due to limited supply can make crypto assets have value.
  • ūüí≤ Crypto assets have both utility and usefulness that make them valuable.
  • ūüĒó The technology behind crypto assets, such as transparency, decentralization, and borderless, are also factors that make crypto assets valuable.
  • ūüĎĀÔłŹ‚Äćūüó®ÔłŹ Another factor that makes crypto assets valuable is the public‚Äôs trust and perception of the crypto assets themselves.

Factors That Make Crypto Valuable

When choosing an investment asset, intrinsic value is one of the indicators used for assessing its real value. For example, the stock has intrinsic value because it represents a company’s equity that produces goods or services. Meanwhile, crypto assets are entirely digital and do not have physical assets as reserves. However, that doesn’t mean crypto assets are worthless. Here are four reasons that make crypto assets valuable and can be used as investment assets:

1. Scarcity

In economics, something has value if it fulfils two conditions: scarcity and utility. Scarcity means something has a limited supply. In the case of cryptocurrency, most crypto assets have a maximum supply limit. For example, bitcoin (BTC) has a supply limit of 21 million bitcoins. Many analysts explain that this maximum supply makes cryptocurrencies like bitcoin more valuable than other assets.

Cryptocurrencies cannot be created according to the creator’s wishes like fiat money and also cannot be suddenly found in large quantities like gold. Most cryptocurrencies already outline the distribution plan in their white paper. This approach emphasizes transparency on the supplies of each coin. Several cryptocurrencies such as Binance Coin (BNB) also employ coin burning as a deflationary strategy. The periodic burning policy is an effort to maintain the supply and thus value of the coin.

Therefore, cryptocurrencies will always be scarce due to this limited supply. This is one of the reasons why crypto is valuable and have value.

You can learn more about the limited supply of Bitcoin through the following article.

2. Usefulness

The second aspect of judging the value of goods is through their utility or usefulness. The aspect of utility in goods can be divided into two, their ability as a medium for storing wealth and their use in daily activities. As a medium for storing wealth, cryptocurrencies can be stored for a long period of time without worrying about being lost, damaged, or losing their value.

Coins like bitcoin have proven to be profitable long-term assets. If you look at its price history, in 2016 bitcoin had a price of $400 dollars while in 2021 it reached $60,000 dollars. This proves the ability of cryptocurrencies as a means of storing wealth. But, this ability to store wealth differs between each coin as some cryptocurrencies are less sustainable over time in terms of their price.

The implementation of cryptocurrencies in everyday activities is still limited. However, its implementation on the internet goes much faster. Newer generation cryptocurrencies like Ethereum are creating an entirely new financial ecosystem on the internet.

This ecosystem expands through decentralized finance (DeFi) and decentralized applications (DApps) that have multiple functions and purposes. In addition, a growing community of users utilize Ethereum for a wide variety of purposes such as lending, games, decentralized money exchange (DEX), and NFT.

You can learn more about the DeFi ecosystem and its uses in the following article.

So, based on the aspect of utility, cryptocurrencies have the same obvious uses as other valuables like gold and fiat money. Moreover, the implementation of crypto in daily activities will continue to grow.

3. Technology

The blockchain technology powers most of cryptocurrencies today. Blockchain is the very foundation of cryptocurrency and brings many benefit to its users
Blockchain Technology. Source: builtin.com

One of the reasons why cryptocurrencies are valuable is the innovation and technology behind them. Blockchain technology provides many advantages when compared to conventional money. There are 3 main advantages of crypto technologies that benefit its user.

Transparency

Transparency is one of the strengths of blockchain technology in cryptocurrencies. Blockchain is a digital ledger system that contains all transactions ever made. This technology provides crypto assets with a level of transparency not found in other financial systems. Using blockchain explorer, you can trace every transaction ever made on a specific blockchain because the system is publicly accessible. However, all privacy-related data such as name, address, and other important information remains hidden. Furthermore, almost all cryptocurrency developers provide complete data on the progress of their project including future roadmap and current distribution.

Decentralization

Centralized and decentralized system each have their own flaws. However, in the internet era, decentralized system have so much more to offers regarding its security and protection of privacy
Centralized and decentralized system. Source: Yield app

So far, the world’s economic system has always used a centralized system model. The entire system is controlled by a group of people, companies, or organizations that acts as the central authority for the system. In a security context, this is dangerous because it creates vulnerabilities in the system. Criminals can target these central authorities to try to disable the system or commit other crimes.

The decentralized system of cryptocurrency eliminates these centralized authorities and instead, spread the governance of the system toward its users. In cryptocurrencies, activities occur peer-to-peer or between individuals. This ensures the security of the system and eliminates the need for a middle man thus protecting the privacy of users.

Smart contracts and DApps are one of the results of technology brought by crypto assets. Find out more in the following article.

Borderless

As we all know, cross-border transactions are still dependent on third parties organizations such as banks and other financial services. Additionally, you will need to pay transaction fees and must have access to cross-border finance such as Visa. Cross-border transactions must also go through a currency conversion process that incurs additional costs.

Cryptocurrencies are not limited by country borders. Assets like Bitcoin or Ether are global and you don’t need to do any conversions when you want to send them to someone halfway across the globe. As long as you have their transaction address, you can send your coins to anyone anywhere.

The global nature of cryptocurrencies becomes one of the most important factors as to why crypto is valuable

4. Public trust

One of the basic tenets of the money economy is public trust and opinion. Fiat money in paper form can be widely used because everyone trust in its value, not because the paper itself is valuable. This also applies to Bitcoin or other cryptocurrencies. The trust of users and public perceptions helped shape the value and price of cryptocurrencies.

You can learn more about the differences between traditional currency and cryptocurrency in the following article.

Dogecoin started of as a meme in the crypto world to show the absurdity of the current financial system. However, after Elon Musk tweets his support for the coin, its price exploded.
The Dogecoin Phenomenon. Source: Photo by Executium in Unsplash

In the case of cryptocurrency, this trust applies not only to the currency but sometimes to the entire ecosystem of a coin. For example, trust and perception of Ethereum do not only consider the price of ether as a currency. This perception is also formed by looking at the supporting ecosystem of Ethereum such as its community, developers, and also its future plans.

A unique phenomenon in the world of cryptocurrency is the significant influence of technology icons. Elon Musk’s tweets on Twitter or news about mega investors entering the crypto world can affect the price of an asset. For example, Dogecoin’s experience a price surge due to Elon Musk’s tweet. However, after he moved away from promoting the coin, the price of Dogecoin plunged again. This demonstrated the volatile nature of cryptocurrencies where it is still vulnerable to being influenced by popular figures.

Conclusion

So, just like fiat currencies, cryptocurrencies basically have value because of the trust of the people who use them. Technologies, usability, and their scarce nature also plays an important role. Crypto assets are also considered valuable because they can become a global medium of exchange with a value that is recognized by many. Perceptions of the value of cryptocurrencies will continue to evolve alongside the rise of awareness of the general public towards it.

Talking about the future of crypto assets, you can learn about it through the following article.

Start Investing at Pintu

Through Pintu, you can invest in various crypto assets such as BTC, BNB, ETH, and others safely and easily.

Pintu is also compatible with popular wallets such as Metamask to facilitate your transactions. Download  Pintu app on Play Store and App Store! Your security is guaranteed because Pintu is regulated and supervised by Bappebti and Kominfo.

Besides making transactions, in the Pintu Apps, you can also learn more about crypto through various Pintu Academy articles which are updated every week! All Pintu Academy articles are made for knowledge and educational purposes, not as a financial advice.

Reference:

  1. Binance Academy, Why does Bitcoin have value? Binance, accessed on 18 October 2021.
  2. Maker DAO, How Does Cryptocurrency Have Value, and Why Should I Care? Maker DAO, accessed on 18 October 2022.
  3. Naga Global, Where do cryptocurrencies get their value? Naga, accessed on 18 October 2021.
Author:Ari Budi Santosa

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