Crypto currency - where is the actual value?
Discussion
I know there is a crypto currency thread running, but that seems to be about what people think are the investment opportunities and how much they're making out if it.
I'm starting this thread because I have a different question and I'm genuinely curious.
A friend of mine has started investing in crypto. When he was telling me about it, he says it's worth owning because money in its current form is going cease to exist within a few years (I'm not convinced about that - cash maybe), Elon Musk has invested millions in it and he's a smart man, you can buy things with it (surely you can do that with money?), and his brother in law is doing it and he's made money out of it so...
The question he seems to struggle with is, where is the actual value? If you invest in shares in Apple, you own a tiny portion of a company that has value, and it pays out dividends, so I can see the value in that. Likewise, if you invest in diamonds, there is a market for people who wants hard sparkly things, either for jewellery or for industrial use, so again, I can see the value, see that it's a limited resource, and therefore supply and demand means that if there is less supply than demand, the price (value) should rise, due to people wanting it for a purpose.
But where is the actual demand for bitcoin? What is its value? What is it used for? What is the benefit to actually owning some, outside of the somewhat ethereal, well people just want it, and if they want it more tomorrow, it will be worth more?
Why do they want it? What benefit (like owning shares pays dividends and owning diamonds gives you something sparkly and pretty to look at or hard to strengthen something with) does it actually bestow on anyone who owns it?
I'm starting this thread because I have a different question and I'm genuinely curious.
A friend of mine has started investing in crypto. When he was telling me about it, he says it's worth owning because money in its current form is going cease to exist within a few years (I'm not convinced about that - cash maybe), Elon Musk has invested millions in it and he's a smart man, you can buy things with it (surely you can do that with money?), and his brother in law is doing it and he's made money out of it so...
The question he seems to struggle with is, where is the actual value? If you invest in shares in Apple, you own a tiny portion of a company that has value, and it pays out dividends, so I can see the value in that. Likewise, if you invest in diamonds, there is a market for people who wants hard sparkly things, either for jewellery or for industrial use, so again, I can see the value, see that it's a limited resource, and therefore supply and demand means that if there is less supply than demand, the price (value) should rise, due to people wanting it for a purpose.
But where is the actual demand for bitcoin? What is its value? What is it used for? What is the benefit to actually owning some, outside of the somewhat ethereal, well people just want it, and if they want it more tomorrow, it will be worth more?
Why do they want it? What benefit (like owning shares pays dividends and owning diamonds gives you something sparkly and pretty to look at or hard to strengthen something with) does it actually bestow on anyone who owns it?
The seven stages of crypto
1. Disbelief - where is the value, I don't understand
2. It's a bubble - something something tulips
3. It's overpriced - It made sense x years ago or at $x value, but not now
4. FOMO - I'll buy a little on a popular exchange and see where it goes
5. Regret - Why didn't I buy more six months/five years ago
6. Enlightenment - Crypto is the future, FIAT is dead, #HODL!
7. The rabbit hole - when all you talk about is farming, GPUs, liquidity pools, hash rates, staking, ICOs and finding the next 1000xer.
1. Disbelief - where is the value, I don't understand
2. It's a bubble - something something tulips
3. It's overpriced - It made sense x years ago or at $x value, but not now
4. FOMO - I'll buy a little on a popular exchange and see where it goes
5. Regret - Why didn't I buy more six months/five years ago
6. Enlightenment - Crypto is the future, FIAT is dead, #HODL!
7. The rabbit hole - when all you talk about is farming, GPUs, liquidity pools, hash rates, staking, ICOs and finding the next 1000xer.
Where is the value in art that is rubbish? Yes it’s material... but rubbish.
Especially when you can just copy most of it and print it out and paint over with egg white
Where is the value in an old Porsche? It’s old and ultimately crap. Only sentimentality give it value.
Mega mansions near low lying coastlines?
A computer game or piece of software that can be copied for free except for ‘legal’ limitations... essentially the legal framework gives value here.
A leasehold flat in a multi-storey building clad in flammable materials.
Especially when you can just copy most of it and print it out and paint over with egg white
Where is the value in an old Porsche? It’s old and ultimately crap. Only sentimentality give it value.
Mega mansions near low lying coastlines?
A computer game or piece of software that can be copied for free except for ‘legal’ limitations... essentially the legal framework gives value here.
A leasehold flat in a multi-storey building clad in flammable materials.
It has no value, fundamentally. As you say, it doesn't offer a return, and you're not buying anything with a NAV.
It has a price above £0 because people are buying it, hoping that it will be worth more later, not because they are buying it to use. Classic bubble, IMO.
The counter argument is that it has value because people believe it has value, and as long as people continue to believe it has value then it will continue to do so. Like all "money" it relies on trust and faith in the system. The difference (IMO) is that any central currency is backed by the government/treasury and accepted as payment as "legal tender". Bitcoin will never be legal tender, and so is entirely reliant on the belief that the person receiving it will be able to spend it without it losing value, or convert it back into £ before it loses value.
Overnight Bitcoin dropped 20%. If you had been paid yesterday in Bitcoin and needed to pay your supplier today in $ then you're facing a big hole. For that reason it doesn't work as a currency (too volatile), and it doesn't work as a store of value. It is also hugely exposed to any regulation which may seek to restrict its use.
There is a difference between blockchain technology and automating contracts etc, and the coins which sit on those chains. Quite a lot of cryptocoins are entirely irrelevant to the workings of the underlying technology and are simply sold to raise cash for the developers, without any practical application at all, and certainly not required for the contract matching and such like to happen.
It has a price above £0 because people are buying it, hoping that it will be worth more later, not because they are buying it to use. Classic bubble, IMO.
The counter argument is that it has value because people believe it has value, and as long as people continue to believe it has value then it will continue to do so. Like all "money" it relies on trust and faith in the system. The difference (IMO) is that any central currency is backed by the government/treasury and accepted as payment as "legal tender". Bitcoin will never be legal tender, and so is entirely reliant on the belief that the person receiving it will be able to spend it without it losing value, or convert it back into £ before it loses value.
Overnight Bitcoin dropped 20%. If you had been paid yesterday in Bitcoin and needed to pay your supplier today in $ then you're facing a big hole. For that reason it doesn't work as a currency (too volatile), and it doesn't work as a store of value. It is also hugely exposed to any regulation which may seek to restrict its use.
There is a difference between blockchain technology and automating contracts etc, and the coins which sit on those chains. Quite a lot of cryptocoins are entirely irrelevant to the workings of the underlying technology and are simply sold to raise cash for the developers, without any practical application at all, and certainly not required for the contract matching and such like to happen.
Mr Whippy said:
Where is the value in art that is rubbish? Yes it’s material... but rubbish.
Especially when you can just copy most of it and print it out and paint over with egg white
Where is the value in an old Porsche? It’s old and ultimately crap. Only sentimentality give it value.
Mega mansions near low lying coastlines?
A computer game or piece of software that can be copied for free except for ‘legal’ limitations... essentially the legal framework gives value here.
A leasehold flat in a multi-storey building clad in flammable materials.
Surely you can understand why these would have value to someone? Especially when you can just copy most of it and print it out and paint over with egg white
Where is the value in an old Porsche? It’s old and ultimately crap. Only sentimentality give it value.
Mega mansions near low lying coastlines?
A computer game or piece of software that can be copied for free except for ‘legal’ limitations... essentially the legal framework gives value here.
A leasehold flat in a multi-storey building clad in flammable materials.
To take the old air cooled Porsche. It's not as good as a modern Porsche and maybe it costs more. But someone might appreciate the history of it and want to own a part of it. They might like the look of it, the way it feels when they drive it, maybe their father or grandfather owned one and it evokes powerful memories, maybe they grew up wanting one and gain a sense of achievement from realising the boyhood dream.
If I had the money and the space, I could put an old Porsche in the garage and derive pleasure from all manner of ownerships aspects completely outside of 'it's an appreciating asset'. It's an appreciating asset because people want them and there are less and less of them. It has a value to some people.
So I buy a crypto coin. What makes that worth money? Where is the benefit to owning it? How has it enhanced my life? How will it generate income (beyond the hope that someone else will think it's worth more tomorrow because they hope that the day after, someone else will hope it's worth even more)?
I'm not knocking it, I'm genuinely trying to understand it. Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
Condi said:
It has no value, fundamentally. As you say, it doesn't offer a return, and you're not buying anything with a NAV.
It has a price above £0 because people are buying it, hoping that it will be worth more later, not because they are buying it to use. Classic bubble, IMO.
The counter argument is that it has value because people believe it has value, and as long as people continue to believe it has value then it will continue to do so. Like all "money" it relies on trust and faith in the system. The difference (IMO) is that any central currency is backed by the government/treasury and accepted as payment as "legal tender". Bitcoin will never be legal tender, and so is entirely reliant on the belief that the person receiving it will be able to spend it without it losing value, or convert it back into £ before it loses value.
Overnight Bitcoin dropped 20%. If you had been paid yesterday in Bitcoin and needed to pay your supplier today in $ then you're facing a big hole. For that reason it doesn't work as a currency (too volatile), and it doesn't work as a store of value. It is also hugely exposed to any regulation which may seek to restrict its use.
There is a difference between blockchain technology and automating contracts etc, and the coins which sit on those chains. Quite a lot of cryptocoins are entirely irrelevant to the workings of the underlying technology and are simply sold to raise cash for the developers, without any practical application at all, and certainly not required for the contract matching and such like to happen.
That does sound a lot like a pyramid scheme...It has a price above £0 because people are buying it, hoping that it will be worth more later, not because they are buying it to use. Classic bubble, IMO.
The counter argument is that it has value because people believe it has value, and as long as people continue to believe it has value then it will continue to do so. Like all "money" it relies on trust and faith in the system. The difference (IMO) is that any central currency is backed by the government/treasury and accepted as payment as "legal tender". Bitcoin will never be legal tender, and so is entirely reliant on the belief that the person receiving it will be able to spend it without it losing value, or convert it back into £ before it loses value.
Overnight Bitcoin dropped 20%. If you had been paid yesterday in Bitcoin and needed to pay your supplier today in $ then you're facing a big hole. For that reason it doesn't work as a currency (too volatile), and it doesn't work as a store of value. It is also hugely exposed to any regulation which may seek to restrict its use.
There is a difference between blockchain technology and automating contracts etc, and the coins which sit on those chains. Quite a lot of cryptocoins are entirely irrelevant to the workings of the underlying technology and are simply sold to raise cash for the developers, without any practical application at all, and certainly not required for the contract matching and such like to happen.
Ari said:
Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
Same thing I have been trying to understand for years. The people "using" it are doing so because they cannot use regulated currencies, and because it avoids the banking system. Think drug dealers, hackers, rogue states like Iran and N Korea. For the average person with access to a bank account, I cannot see any use for it at all. Nobody on the main cryto thread can answer that question either.
Ari said:
So I buy a crypto coin. What makes that worth money? Where is the benefit to owning it? How has it enhanced my life? How will it generate income (beyond the hope that someone else will think it's worth more tomorrow because they hope that the day after, someone else will hope it's worth even more)?
I'm not knocking it, I'm genuinely trying to understand it. Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
To understand crypto, first you need to understand money. The people who don't 'get' crypto, generally don't 'get' money either, but paper with pictures of the Queen on them are at least familiar to them.I'm not knocking it, I'm genuinely trying to understand it. Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
I recommend starting here, Jacob Goldstein does a good job of explaining why money exists, and that it is itself completely valueless. The various attempts made by civilisations over the past 1000 years or so to agree that something is worth something else. It is all just a made up concept which only works because people believe it works. Crypto is no different in that regard. Some are definitely dodgy, but by no means all, and to a lot of people they represent the future of money, rather than just a chance to make a quick buck so they can make Lambo videos.
Condi said:
For the average person with access to a bank account, I cannot see any use for it at all. Nobody on the main cryto thread can answer that question either.
You own some, and the numbers tend (with the odd massive drop) to get bigger, so far. To the average member of the public having no knowledge of RoCE or P/E ratio and that seems to them to be little different from owning equities except the numbers get bigger faster.Add that everyone who owns any has a vested interest in increasing demand, spare cash due to stimulus cheques or reduced spending opportunities and a degree of FOMO, and you're off to the races.
I seem to be stuck on step 2 of LimaDelta's list.
Ari said:
Surely you can understand why these would have value to someone?
To take the old air cooled Porsche. It's not as good as a modern Porsche and maybe it costs more. But someone might appreciate the history of it and want to own a part of it. They might like the look of it, the way it feels when they drive it, maybe their father or grandfather owned one and it evokes powerful memories, maybe they grew up wanting one and gain a sense of achievement from realising the boyhood dream.
If I had the money and the space, I could put an old Porsche in the garage and derive pleasure from all manner of ownerships aspects completely outside of 'it's an appreciating asset'. It's an appreciating asset because people want them and there are less and less of them. It has a value to some people.
So I buy a crypto coin. What makes that worth money? Where is the benefit to owning it? How has it enhanced my life? How will it generate income (beyond the hope that someone else will think it's worth more tomorrow because they hope that the day after, someone else will hope it's worth even more)?
I'm not knocking it, I'm genuinely trying to understand it. Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
You can understand the old Porsche for emotional reasons like sentimentality. It’s also a big liability, could lose value, probably won’t get driven much, needs insuring and maintaining.To take the old air cooled Porsche. It's not as good as a modern Porsche and maybe it costs more. But someone might appreciate the history of it and want to own a part of it. They might like the look of it, the way it feels when they drive it, maybe their father or grandfather owned one and it evokes powerful memories, maybe they grew up wanting one and gain a sense of achievement from realising the boyhood dream.
If I had the money and the space, I could put an old Porsche in the garage and derive pleasure from all manner of ownerships aspects completely outside of 'it's an appreciating asset'. It's an appreciating asset because people want them and there are less and less of them. It has a value to some people.
So I buy a crypto coin. What makes that worth money? Where is the benefit to owning it? How has it enhanced my life? How will it generate income (beyond the hope that someone else will think it's worth more tomorrow because they hope that the day after, someone else will hope it's worth even more)?
I'm not knocking it, I'm genuinely trying to understand it. Clearly there is billions invested in it so unless it is just a giant pyramid scheme, it must have actual worth/benefit.
People waste billions £££ gambling for emotional thrills.
How is a crypto coin any different?
It’s just an irrational human response to doing something with their money, itself an irrational human manifestation, fundamentally based around the powerful and greedy being able to enslave the weak.
Ari, I'm where you are and lots of people I think are the same regardless of being in or out of crypto's. Some don't want to particularly fully understand they just see the opportunity and want in and depending on their mentality/discipline can do very well.
There is useful technology behind (a lot of) it, I've listened to the Cardano guy on videos Charles Hoskinson and he engaged me and there is progress of using the tech in Africa/Ethiopia. Lot's of very clever people devoting their life to something useless makes no sense to me but the 'value' in it is hard to say, yet?
Then you get a 'joke' coin in Doge that does, at times, as well as a more genuine/useful/thought out coin, that's when for me you can see a large part of the market is speculation and very risky.
When lot's of the price is based on belief and potential then the drops can be large as well as the gains, most of the these coins have no user base that would miss what they can do? ie the wheels fall off nothing if they plummet apart from holders at the time lose lots of their money. Right now people believe they can simply hold for a bounce as so far that's generally worked, again perhaps in the future lots won't.
Those that gain money on a coin of dubious use are then handing the money on to others who are trying the same, just with arguably higher risk each time?
You have some coins that move far more on one persons (Musk) tweet than any new news on it's advancement in use or take up etc
Again lots of high end investors are coming round to bitcoin at least, but not all by any means and naturally as soon as you buy in you are positive on it, partly because of the price, but mostly because you have come around to it being good to have at least some and so of course you confidently state this?
There is useful technology behind (a lot of) it, I've listened to the Cardano guy on videos Charles Hoskinson and he engaged me and there is progress of using the tech in Africa/Ethiopia. Lot's of very clever people devoting their life to something useless makes no sense to me but the 'value' in it is hard to say, yet?
Then you get a 'joke' coin in Doge that does, at times, as well as a more genuine/useful/thought out coin, that's when for me you can see a large part of the market is speculation and very risky.
When lot's of the price is based on belief and potential then the drops can be large as well as the gains, most of the these coins have no user base that would miss what they can do? ie the wheels fall off nothing if they plummet apart from holders at the time lose lots of their money. Right now people believe they can simply hold for a bounce as so far that's generally worked, again perhaps in the future lots won't.
Those that gain money on a coin of dubious use are then handing the money on to others who are trying the same, just with arguably higher risk each time?
You have some coins that move far more on one persons (Musk) tweet than any new news on it's advancement in use or take up etc
Again lots of high end investors are coming round to bitcoin at least, but not all by any means and naturally as soon as you buy in you are positive on it, partly because of the price, but mostly because you have come around to it being good to have at least some and so of course you confidently state this?
LimaDelta said:
To understand crypto, first you need to understand money. The people who don't 'get' crypto, generally don't 'get' money either, but paper with pictures of the Queen on them are at least familiar to them.
I recommend starting here, Jacob Goldstein does a good job of explaining why money exists, and that it is itself completely valueless. The various attempts made by civilisations over the past 1000 years or so to agree that something is worth something else. It is all just a made up concept which only works because people believe it works. Crypto is no different in that regard. Some are definitely dodgy, but by no means all, and to a lot of people they represent the future of money, rather than just a chance to make a quick buck so they can make Lambo videos.
This - which is constantly ignored.I recommend starting here, Jacob Goldstein does a good job of explaining why money exists, and that it is itself completely valueless. The various attempts made by civilisations over the past 1000 years or so to agree that something is worth something else. It is all just a made up concept which only works because people believe it works. Crypto is no different in that regard. Some are definitely dodgy, but by no means all, and to a lot of people they represent the future of money, rather than just a chance to make a quick buck so they can make Lambo videos.
Cash can be laundered too!
Hopefully this will keep it off the other thread now as people go round in circles.
Volatility exists in regulated markets too, my ISA took a hit last few days because of "fears" of inflation. People guessing the future or releasing information to drive down prices and short.
What I like about crypto is actually it lays bare that manipulated wealth generation based on perceived value or loss can sit with normal people as well as big whales.
It's all a bit of a game, we just don't like having our reality shaken that somehow money is a concept not a thing.
It is best to think of it as a store of wealth like gold. Crypto is not really a currency, it is not as if you can actually use your XRP or DOGE to buy things.
The value is all purely speculative, the hope that it will go up in value, the greater fool theory if you will.
As for the actual value, it is either zero or infinite depending on what you believe.
The value is all purely speculative, the hope that it will go up in value, the greater fool theory if you will.
As for the actual value, it is either zero or infinite depending on what you believe.
Joey Deacon said:
The value is all purely speculative, the hope that it will go up in value, the greater fool theory if you will.
and when you say go up in value that is, value in £'s $'s etc so the excitement comes from getting more of your currency, so the 'money is just a concept'talk may be right in a way but still the vast vast majority of people (all bar some Gold/Crypto bugs) have their own regular currency more as the ultimate money still?
Joey Deacon said:
Crypto is not really a currency, it is not as if you can actually use your XRP or DOGE to buy things.
But you can use BTC. You can get a BTC debit card. In some more Scootersp said:
Joey Deacon said:
The value is all purely speculative, the hope that it will go up in value, the greater fool theory if you will.
and when you say go up in value that is, value in £'s $'s etc so the excitement comes from getting more of your currency, so the 'money is just a concept'talk may be right in a way but still the vast vast majority of people (all bar some Gold/Crypto bugs) have their own regular currency more as the ultimate money still?
xeny said:
You own some, and the numbers tend (with the odd massive drop) to get bigger, so far. To the average member of the public having no knowledge of RoCE or P/E ratio and that seems to them to be little different from owning equities except the numbers get bigger faster.
Add that everyone who owns any has a vested interest in increasing demand, spare cash due to stimulus cheques or reduced spending opportunities and a degree of FOMO, and you're off to the races.
I seem to be stuck on step 2 of LimaDelta's list.
Yes, you're totally right, but that is no long term argument for it's continued use, and is just a representation of the bubble mentality. Add that everyone who owns any has a vested interest in increasing demand, spare cash due to stimulus cheques or reduced spending opportunities and a degree of FOMO, and you're off to the races.
I seem to be stuck on step 2 of LimaDelta's list.
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