Why cryptocurrencies have value?

Many people have a hard time understanding why cryptocurrencies have value. They think that if they are not backed by a government or something tangible, they cannot be valuable.

Cryptocurrencies have value because users have confidence in them. It is similar with fiat money and gold. If no one believed they had value, they would be worthless. But why do some people have faith in Bitcoin and other cryptocurrencies? Besides having a network that has been running smoothly since 2009, Bitcoin has something that sets it apart from fiat money: it is scarce. There will never be more than 21 million bitcoins.

In contrast, central banks print the money they want in order to manage the economy from above. As more and more money becomes available, it becomes less and less valuable.

That is why, measured in euros or dollars, Bitcoin is becoming more and more valuable. This digital scarcity was created in the Bitcoin protocol to maintain the value of the currency. While it is possible to create another blockchain similar to Bitcoin (as Bitcoin is free software) and thus create more coins, not everyone would adopt the clone currency, as the value lies mainly in the community of users and the trust acquired over the years. There are a multitude of different currencies that try to compete with Bitcoin, but they only have value because they provide some different functionality and have a community behind them.

How can something digital be scarce?

Unlike other digital assets that can be copied and pasted without limit, cryptocurrencies operate in a decentralized manner with a consensus mechanism that guarantees their security and scarcity. This consensus mechanism varies from cryptocurrency to cryptocurrency. The first consensus mechanism used is based on a process known as proof-of-work, in which computers called miners compete to solve mathematical problems to validate transactions.

Since miners receive financial rewards for mining, there is a large network of computers that keep the network decentralized and running 24 hours a day, every day of the week. Proof of work makes it nearly impossible to reverse or modify a transaction once it is part of the blockchain. Since the network is validated by a large number of actors who receive rewards for their contribution and thus have a stake in the proper functioning of the network, it is not economically feasible to amass more than 50% of the network to maliciously alter the blockchain.

Less and less is being issued

Bitcoin inflation rate from inception to 2040

Every four years, Bitcoin reduces the rewards received by miners by half, so fewer and fewer coins are issued. In the year 2140, Bitcoin inflation will be 0%, that means that no new coins will be issued. Miners will then continue to receive rewards because there are fees they receive for validating transactions. Bitcoin's inflation is currently lower than that of gold, making it one of the most coveted assets and one of the fastest growing in value.

No central entity can control or confiscate your bitcoins

Another appeal that makes Bitcoin valuable is that it cannot be confiscated by bankers or anyone else. Nor can payments be reversed, as in the traditional banking system. If you keep your private key secure, no one can take your wealth.

It enables international trade

Thanks to blockchain technology, it is possible to trade with anyone in the world who has access to the Internet. Cryptocurrencies have gained recognition and users across the globe, increasing their value.

Conclusion

As long as the Internet and people who value and believe in this technology continue to exist, Bitcoin and similar cryptocurrencies will continue to increase in value over the long term, as they are deflationary. People who hoard fiat money, on the other hand, will lose purchasing power over time if central banks continue to issue more money.

Why choose the Tor network to host your website?

The Tor network not only provides privacy, but also reduces costs and makes your website more censorship-resistant. How?

On the Web you need to pay for a domain. That domain can easily be censored by the authorities if they consider you to be doing something illegal or if you are in a country without freedom of speech. In contrast, on the Tor network you do not have to pay for a centralised authority to assign an IP address to your Keep reading Why choose the Tor network to host your website?

Monero can no longer be legally traded in the EU

The cryptocurrency platform Binance already delisted Monero in February. Now it's Kraken's turn, as it will stop offering Monero for EU customers in November. Why is Monero so dangerous?

Monero transfers are not traceable, which poses a problem for an EU that wants to track cryptocurrency transactions in the same way they track traditional money transfers. Kraken has thus been forced to delist Monero for EU customers.

However, in other countries you can still buy Monero legally and there are decentralized platforms and channels where you can buy and sell Monero. One example is Haveno-reto, which runs on Tor to preserve the privacy of participants.

Will the EU also prohibit cryptocurrency platforms from selling and buying Zcash, Dash or Litecoin1? I don't think so, because these coins are not private by default, unlike Monero.


  1. Litecoin's MWEB offers users the option to send confidential transactions. 

Cryptocurrencies are free-software money, so I use them

Fiat currencies keep losing value and are controlled by a small elite. On the other hand, there are open-source cryptocurrencies that cannot be inflated and work in a peer-to-peer network, without the need for a central bank or single administrator. Why pay attention to them and use them? How to do it?

These currencies keep gaining value compared to fiat currencies, because they cannot be created out of thin air as central banks do when it is in their interest. That is why people who save or invest in cryptocurrencies have a big advantage over people who save in fiat money.

Bitcoin price development between March 2013 and August 2024
Monero price development between May 2013 and August 2024

But they are not just an investment tool; they are currencies that can be used to buy all kinds of goods and services. There are a large number of companies that accept cryptocurrencies. If a company does not accept them directly, it is often possible to purchase gift cards through companies that act as intermediaries1. It is possible to live on your own only using cryptocurrencies; I have done so for some time and continue to use them in my day-to-day life.

Keep reading Cryptocurrencies are free-software money, so I use them

The environmental impact of fiat money

Ignorant people rant about the environmental impact of cryptocurrencies. They don't know shit. How many wars were created over fiat currencies and the power plays of politicians and central bankers?

Fiat currencies are inflationary, so they encourage economic growth (at what cost? At whose expense?). That inflation also attenuates the indebtedness of states, it is like an invisible tax against the poor and the financially uneducated.

Dumb journalists, central bankers and politicians try to hinder financial independence and privacy with bans and biased news. They have failed; they will not succeed. It would be like trying to ban precious metals.

There are cryptocurrencies that are trash, that don't provide privacy, etc., but you can't tar everything with the same brush. Moreover, the environmental impact is minimal compared to fiat currencies. There are cryptocurrencies that pollute more than others, of course. For those who care more about the environment, there are cryptocurrencies that do not use proof-of-work algorithms.