Economic value of Crypto – A Perspective

26 May, 2022 / MVS Mani

It was a view given in a discussion that I was part of that got me thinking.

The view was – Crypto does not create any economic value and hence why should we support the growth start-ups around crypto .

On one side, I also understand that there are many benefits that a Decentralised network offers and crypto as technology.  On the other side, I hear from different quarters the questioning of the use of crypto as a technology value which has so far been dictated by various hard currencies in the physical world.

From the 90’s till now, there has been a shift in the technology has proved to be a disruptor.  And as always – the debate rages.  But Blockchain as a technology brought a shift to open source movement, where the community mints its own currency and where depending on the demand and supply, the value varies.

It is my view that any discussion about the Value of Bitcoin (or crypto) must address the nature of what Currency implies. Gold was useful as currency due to its inherent physical attributes – rare, hence valued. Paper money was an improvement, but it has to be printed and stored. Digital currency has moved from physical attributes towards functional characteristics.

I saw a comparison table across various currency forms and I am reproducing the same here for us to appreciate the relative characteristics (image courtesy:  Investopedia)

When I saw this table, I understood how crypto has more advantageous attributes than other forms of money, but the issue is central banks of each country (I can refer to them as community) have not recognised it for common commercial use.  This issue is for any other physical currency as well – I cannot use any other currency as a form of accepted currency except the local currency.  Euro is the one that came closest to breaking this barrier.

In this world of non-crypto currencies, USD seems to be the more traded currency globally and hence the demand for USD.  And this is because the larger world economies like US, China, UK push their own currency to be traded globally, to keep the value of their currency stable. I have come to realise the whole settlement system was built around this theory of most powerful economies.  I have seen reports from some economists that predicts that the Russia–Ukraine war is also an attempt to try to challenge some of the existing trade currencies, and to redraw global currency dominations.

I keep reading all these argument for and against crypto but the one thing I realise is that crypto exchanges offers all that a Bank offers (aave.com).  Crypto currencies are traded because of speculation in supply and demand created by the communities which use them predominantly. Depending on utility and functionality it creates within the community, a crypto will exist or perish.  The case in point is the recent TERRA Luna crash.

Coming back to the question whether crypto brings economic value, my view is no technology brings economic value, it only unveils the hidden value depending on functionality.  Using Microsoft products doesn’t result in my being able to generate additional revenue or cut cost but perhaps Excel as a tool helped bring out timely management reports that helped take decisions that in turn brought in the revenue or managed cost.  Most of the products are traceable for their value but not the software I purchased😊

Depending on the comments, I would like to share more thoughts on the web3.0 space .

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