Conceptualizing Value in Bitcoin

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Conceptualizing Value in Bitcoin

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2018 has been the second year that the mainstream financial and tech media has been covering “cryptocurrencies,” and rightfully so. If some bits on the internet can be worth over $8,300 USD a piece (Bitcoin), that certainly intrigues me.

The basis of the idea is quite compelling as it offers a decentralized form of currency so that the feds (The Federal Reserve) can’t press start on the printing machine inflating the value of the dollar. The other compelling aspect is the “blockchain” technology behind cryptocurrency to keep a ledger of transactions using the currency occurring all over the world at any given point in time.

The great thing about blockchain is that the records are not stored in one centralized location, and instead on everyone’s “block” that belongs to the chain. Now, I am not going to pretend to understand the technology behind cryptocurrency like an expert, but I would say that I know a fair amount more than your average Joe.

While I do believe in and respect modern-day American capitalism with a central bank in place to stimulate economic measures, cryptocurrency may just have its place in online transactions among the crypto-enthusiasts.

In my opinion, the only way for the currency to ever get any trading value when commerce is conducted, it must hold some “intrinsic value” among average people. The one thing that your average Joe can conceptualize is that cryptocurrencies such as Bitcoin are backed by thin air.

In reality, that is also the case with USD (The US Dollar) and all other tradable government-backed currencies. The last time the USD was backed by anything was when the Gold Standard was in place and every USD held the value of so many ounces of gold. The only reason that the USD and other currencies hold value to the average Joe is the fact that one can physically hold a USD and that those around them, including themselves, want to collect as many of these green pieces of paper as they can.

Again, just as cryptocurrencies are backed by thin air or (bits), the USD is the same and only holds value in the paper as opposed to bits. My thought is that why doesn’t one of these countless ICO’s (Initial Coin Offering) issuing cryptocurrencies, get backed by something physical and tangible to the average Joe, such as a tradable commodity. I need to fully collect my thoughts around this idea so I will follow up with a future post going in depth on how this would work.

DISCLAIMER: Cameron is not a certified financial advisor and all things stated should be considered solely as entertainment and NOT for financial transactions.