One of the biggest and hardest concepts for new users to grasp is how a cryptocurrency achieves its value, and why it is valuable in the first place.
Most individuals are first introduced to the cryptocurrency space by hearing and learning about Bitcoin, but the reasons behind Bitcoin's price evaluation are often not understood by new users. Bitcoin in my opinion still gains much of its value due to the fact that it was the first in the space and has always had the largest amount of support. As many of you may know, Bitcoin has a finite supply which is constantly decreasing over time, specifically the mining rewards are cut in half every 4 years. This has enabled Bitcoin to present itself similar to a 'digital gold', because it is a 'hard' asset that is not controlled by any institution which appeals to a wide range of different types of investors. Bitcoin and the underlying technology laid the groundwork for most of advancements within the blockchain space since its deployment, and has gained abundant support over the past year from investors and investment levels never seen before.
Bitcoin is a very interesting cryptocurrency in terms of ability, because if we look objectively it is very limited on its abilities due to its technology, but it still is able to gain and maintain support while this remains the case. In years past I always believed that Bitcoin would be the first cryptocurrency to gain adoption and practicality, but that is beginning to not look like the case. The institutional investors either are not fully aware of the potential issues Bitcoin faces, or they simply think that Bitcoin will find a method to overcome them. Even if a coin doesn't gain long term success, profits can still be made off of price increases due to speculation, which has been evident throughout Bitcoin's past. I'm in no way trying to talk negative about Bitcoin for no reason, but I am simply trying to portray my honest opinion about its current state.
What gives a cryptocurrency or platform value?
The best example that I can think to use to explain this is the example of Steemit, and its reward system. One of the major questions that I am asked after explaining Steemit to others is something to the extent of "Where does the money come from?" or other questions surrounding how the platform's rewards actually work, and why they are valuable. While almost all cryptocurrencies represent a stake in the platform and its resources, because Steemit is a much more 'tangible' platform compared to other blockchain platforms out there the ownership is more 'noticeable'. Let's say you own 1% of the total circulation of Steem in the form of Steem Power, this enables you to have huge control over everything from post rewards to witness selection. While right now it may seem like this isn't all that much, if Steemit were to continue to advance and eventually gain adoption this influence could turn out to be extremely beneficial.
Although right now the Steemit platform is thought of mainly as a social media or 'blogging' platform, with the future developments and advancements we are likely to see in the near future Steemit could become so much more than that. Steemit has tremendous technical advantages over most blockchain projects in existence, and has made steady and consistent advancements as time has gone on. Let's even just pretend that videos were able to be posted and hosted directly on the Steemit blockchain, and eventually the advantages that Steemit contained over current firms like YouTube become pronounced and led to an adoption of Steemit by many in the Youtube community. This example is completely realistic over the following years to come, and even though it may seem small the benefits it would likely bring to the platform would be huge. A large ownership stake would have been very profitable, but the reason that the price would increase would be due to increased use cases and increased practicality.
How many cryptocurrencies are actually driven by practical use cases?
A specific coin can be driven beyond belief by pure speculation, but if the project doesn't hold practical use cases and the ability to handle mass adoption then it is unlikely that a project will experience success in the long term. A platform achieves its value by providing a demand for their specific platform or cryptocurrency that is in demand due to its use cases and applications, rather than because it is in demand by traders and speculators. A coin that is pumped and driven by speculators often don't contain any methods for practically achieving long term success, but traders and investors are still able to make profits in the short term. When considering how valuable a project or token actually is, it's important to look at the projects actually applications and use cases instead of focusing on its price or support level, because those can often be inflated.
Individuals investing heavily in the cryptocurrency market based upon speculation is not anything new, but the degree that speculation has played in the market recently has been unprecedented. A cryptocurrency must receive its value from the demand for the cryptocurrency for use on the platform rather than investment or trading, and only then is a project close to adoption. While Bitcoin was a convenient and practical way to transfer value in the past, the transaction fees and slow times have taken away many of the advantages that Bitcoin once had.
While Bitcoin may still be a practical investment for the future, it is limited in its use cases by nature. To be honest there are very few projects out there that have their price level driven by use cases and practicality rather than the hopes for the projects future. Steemit is one of the projects that truly has the ability to scale, superior technology, and a great potential for long term success, because it has practical use cases right now and will likely only improve and expand on its uses in the future.
I really hope that you enjoyed this post, and I urge you to leave any input, discussions, or arguments in the comments below! The best way to improve understanding and perspective on a topic is to hear different opinions, so please don't hesitate to leave your opinions. Thanks for reading!