What makes a cryptocoin (or any currency) valuable?


Why is a Bitcoin valuable? While almost all concede that shared faith -- or what I would term "Brand" -- is a major component of all currencies, there has been much debate over whether there are more intrinsic values that can keep the currency or token valuable, or get multiplied by brand to even higher value.

If anybody doubted the value of brand, we've seen the market cap of Bitcoin fall from $3T to $1T this year, but there's been no reduction in any of its other attributes, meaning that at least 2/3rds, and possibly much more of the value came from brand. Obviously for FTX's tokens, it looks like all or almost all the value will be in now-destroyed brand.

The sources of value

In asking people what they felt supported the value of coins and tokens, here are some of them

  • As noted, brand -- the belief by a large group that there is value
  • Security, with security differences in the designs of each system
  • Privacy, ranging from that of cash to bitcoins (public transactions, semi-hidden identities) to things like Monero and zCash
  • Less impediment from regulation and governments, including
    • Ability to be used in illegal transactions where use of other currencies is difficulit
    • Ability to cut red tape, in things like cross-border money transfers
    • Difficulty for governments to shut them down
  • Promises of limited supply to stop inflation
  • Ease of use
  • Volatility
  • Speed (processing and settling transactions)
  • Transaction cost
  • Quality of mining system (probably the most talked about differentiator between early coins
  • Technical functions, most notably smart contract support, but also sidechains, automated exchanges etc.
  • Scalability (including transaction volume)
  • Stability -- how rules can change, and if they do
  • Various intrinsic values:
    • Being redeemable for goods or services
    • Being redeemable for fiat (stablecoins)
    • Voting ability (DAOs etc.)
    • Ownership of physical or virtual property or shares of an entity
  • Legal rules
    • Being legal tender
    • Being required to pay debts to a government (ie. taxes)
    • Rules that burden use, or rules that protect users with the force of law

Some factors come with scale, which can include

  • Security that comes from having a very large and diverse mining community
  • Ease of exchange with other currency, especially $US and other fiat
  • Willingness of merchants and other parties to natively use the currency in transactions.
  • A fair bit of brand faith comes from scale

Bitcoin, in particular

Bitcoin is by far the most valuable cryptocoin, with Ethereum 2nd. Most would agree that Bitcoin is not at all the leader in many of the factors listed above. As the first, it is the least innovative and has the fewest features. It has by far the largest mining investment and number of miners -- though also the highest and most destructive mining cost -- and is the most liquid and easy to exchange for fiat or other coins. It also has the best brand. Indeed, there are many forks and clones or near-clones of Bitcoin out there which offer all of its technological features, as well as fixed token supply and many other attributes. Some have fairly decent mining communities and are quite liquid, but all are tiny gnats compared to Bitcoin when it comes to value.

There are thousands of other coins that are leaders in the various attributes above. Almost all can perform all the technical functions of Bitcoin and more, or can match Ethereum or other competing coins in most of the key areas.

It's very hard to find a correlation between these supposed intrinsic sources of value and actual value, though. The main one that does show a correlation is scale. The bigger a coin is, the bigger it is.

Being linked to something in the outside world also correlates with value. Stablecoins get a fixed value, but only because people have faith that the outside asset, such as fiat, has value and is held in reserve. There is not much debate about the value of well constructed stablecoins.


As noted, the $US has a special attribute. The law requires that all who do business in the USA remit taxes to the US treasury in $US. That means each year around $4T is needed to pay those taxes, which creates a very high assured demand for $US. But even $US has brand value, though it is bolstered by this, and faith in the US economy.

It is also worth noting that fiat currencies can compete with cryptocoins if they are forced to. For example, trans-border and electronic payments could be made cheap and easy with fiat, if there were the will to do so. That will might arise if cryptocoins take that "market." Many other attributes can be implemented, and one could say that stablecoins actually implement all these features on top of fiat which makes them powerful. Fiat coins vary a lot in stability, with some being destroyed by inflation and mismanagement, others much less volatile than any cryptocoin.

So what is it?

I am interested in comments on what other attributes belong on this list, and what value these attributes bring to the table. Given the huge number of coins out there, is there any coin that isn't tethered to something external that has a value floor greater than zero? Or is it all brand in the end?


I have been thinking (and writing) about this question for a long time, but only recently think I have found a way that bitcoin could potentially have actual, fundamental value…

What if each bitcoin represents a 1/21,000,000th ownership share in an NFT minted by Satoshi?

Of course for bitcoin to have value via this path requires that NFTs can have fundamental value, and I do not know if that is true or not. But it at least *could* be true and so this a way that bitcoin too could potentially have value. While there are still many ways this chain of reasoning could be wrong, at least I believe it is valid - which is more than I can say about any other bitcoin value claims.

More of my thoughts about this here…

NFTs represent provenance on virtual property, and the value of virtual property is not actual and fundamental.

You could make a cryptocoin that conveyed ownership to a share of a big pile of gold, or a big plot of real estate but you would need to have that property.

So I don't think this goes anywhere. Fiat currencies get to have value because governments make laws demanding things like paying taxes with them. The government has a lot of power in order to command that. What could the creator of a cryptocoin have?

Shares of stock have real value, as long as the company you have shares in has value, which means it needs to have assets, or a business.

What makes any currency valuable? Use in commerce. Lots of people using it to buy and sell stuff, pay their rent, draw a salary, etc. Everything else on your list is a far distant second to that. Cybercurrency promoters have strayed away from that purpose, when someone paid 10,000 Bitcoin for two pizzas. It has become this buy-and-hold asset, a collectible, a Lottery ticket, something you buy and sit on hoping for a huge windfall in the future. NFTs are a further push in that direction, toward collectible, away from spendable. Until that changes, all cybercurrency will remain an economic dead end.

I am not shying away from that. A cryptocurrency is valuable if people will hand you something else valuable in exchange for it. The question is why will they do that, and more to the point why will they do it for one cryptocoin and not another one. What are the differences between the coins that make the difference.

And the biggest difference, I fear is, "I have more faith in coin A being reusable than coin B" -- faith is a combination of intrinsic values and brand, but mostly brand it seems.

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