What is the real value of cryptocurrencies?

Sometimes you wonder what the value of the cryptocurrency X may be because you are not sure if the market price is right to invest in it or not.

I say this because it is what everyone “does” when they buy a cryptocurrency.

Everyone gives “value”. That is, they buy the crypto currency X because they think that it has value for the future.

But what kind of value are we talking about here?

Well, it gives me the feeling that most kids – young people are the strongest group buying crypts – buy these currencies for a purely and simply speculative subject, and not because they think they are buying an asset with value or utility per se.

For example, do you think that those millions of Asian citizens who are buying cryptocurrencies in a frenetic way do so because they consider that they are an investment just like when they bought a house? Or, on the contrary, are they buying them because they are trying to extract a speculative yield?

When I write this article there are more than 1,600 cryptocurrencies in the market, or at least that’s what the coinmarketcap ranking says.

That’s a lot of the most varied cryptocurrencies, too.

The designers of all tell us that they have a great utility and therefore a great value. All these individuals are very interested in us buying these cryptocurrency.

Cryptocurrency projects with value?

Honestly, when I see the look of many of these cryptocurrency projects, I get the feeling that we are dealing with multi-level schemes with absolutely great marketing campaigns that are capable of presenting projects that are pure garbage as the technology does not go beyond modern, and that’s why we have to buy these currencies. In other words, what I seem to see behind many of these projects is a lot of interested people who are responsible for the exit in the market of large “blocks of cryptocurrencies” – the initials at least – and whose interest for others to buy It are very large, hence the titanic effort in the promotion and marketing channels. That kind of project is what some of us call “smoke and mirros”.

Value for the “Peer to peer”

Let’s see, the basic concept of the blockchain system and the cryptocurrencies, which is the possibility of using a peer-to-peer electronic “cash” payment system, is something that has its financial and financial sense. I do not argue.

The aim is to make transactions in the network a system similar to that of cash transactions, anonymously and directly between two people, as when I change a five-euro bill on the street for five coins of one euro, or as when I leave a tip of two euros to the waiter who has made me the cocktails.

In these transactions there is no doubt that not having a financial intermediary facilitates things in terms of economic savings.

Now, pretending that all the plague of cryptocurrencies has an economic value for the fact of being “mathematically limited and safe” and that only with them we can make use of blockchain technology is something a bit illusive from my point of view. Imagined because in the first place not because they are perfect mathematical systems they are infallible from a security point of view.

There is no digital system that is not possible to hack, nor is blockchain technology something that states cannot control in the future. Of these two points, interestingly, the second is the most important, but before that I will comment a bit on the “value” of other assets.

One of the arguments used to try to defend the supposed value of cryptocurrencies is that they are worth what someone is willing to pay and someone to sell, in the most classic example of Laissez Faire; and in this I agree. What happens is that this is one thing, and another is the more or less real value that these assets have.

Stocks, for example, like Apple, have a value that more or less can be measured by having a certain number of them, which cannot be changed and also give us a percentage in the participation of the company with our rights to dividends and others. Everything quite clear and only depends on the future of that company that the value of our shares will tend to rise or fall.

Any cryptocurrency does not give us participation in a company in which dividends of any kind are distributed to us, nor is there a balance sheet, nor is there fundamental market analysis of anything.

Although these projects have cryptocurrencies, we do not see them telling us to buy shares of these companies, but they try to convince us to buy “cryptos”.

Okay, here’s where I first doubt and ask: Why do not you sell shares of your company? And by the way, what is your company?

Why are you so interested in me buying this or this currency?

Where was the money of the people who have been buying that currency? Your pockets, maybe?

When we buy a bond we have a similar case to the shares, whether private or public. I do not think I need to explain here how different one or the other value is.

Raw materials have a value that is dictated, in most cases, by supply and demand.

For example, oil is used as fuel and copper is used in construction and industrial processes. If demand worldwide falls, then we can expect the price of copper or platinum to fall. If there is a global economic expansion, such as from 2003 to 2007, then the price of copper is likely to rise. In addition, the amount produced will depend on the number of companies dedicated to their extraction, as well as how politically the countries where it is.

However, here is where we find the only real currency that is similar to the cryptocurrency concept, in that it has a similar function (being a medium of exchange). We are talking about gold, which is the currency that is supposed to be similar to Bitcoin and the rest of the crypto currency market.

Gold has the following properties: durable, divisible, consistent, easy to transport, has tangible value and cannot be created from scratch.

Do cryptocurrencies have the same properties?

Are they durable?

In theory, yes.

Are they divisible?

Seems that if

Are they consistent?

Yes, they are like “equal digital blocks”

Are they easy to transport?

Yes, at least in the digital world, not in the real world

Do they have intangible value?

This is where doubts begin to assail me.

And the last one: can you create them out of nothing?

Well, here we already enter the truly thorny terrain, because gold cannot be created from nothing, by many alchemists who try it.

The Bitcoin, and the rest of the thousands of cryptocurrencies that exist, are created out of nothing, whether they are the first of each of the same or the following ones that are “mined”.

In the sense of their “creation”, cryptocurrencies are assets that can be created by anyone and in an unlimited way, no matter how much they tell us that we have to solve this or that mathematical problem.

Gold cannot be created like that. Either it is below the Earth or it is not there; and besides, you have to start digging hard to get it out.

Cryptocurrencies are created from nothing, as if by magic, since mining is like gold, supposedly to “discover” these new crypts, but they are already there, in the mine. What happens is that this mine was created by an “alchemist”, in this case a “digital alchemist”.

Between both cases there is a difference as from night to day.

This is actually the real problem with cryptocurrencies.

You realize that they are based on the confidence that the public has over them as a deposit of value and means of exchange.

People trust them because they believe they have an infallible security and that’s why they buy them; and all this despite the fact that day and day is also shown that the theft and hacking of crypts are constant, with a thousand and one excuses of security failures of this or that Wallet. “Security flaws” of which I even have my suspicions as to the true nature of them.

What is the value of cryptocurrencies?

Returning to the initial topic, I still assail the doubt of what is the true value of these cryptocurrencies.

I have no way of knowing.

With stocks, indices, state bonds, corporate bonds, copper, oil, zinc, gold, and even currencies I have some way of analyzing fundamentally the issue and determine if they have value or have no value; in other words, if they are probably expensive or cheap.

With cryptocurrencies I have no way of knowing.

The ICOs, which are the way in which these projects get financing, do not seem to me but ways to obtain capital through the sale of smoke.

I repeat it again, if these projects have value, then why do not you sell me shares of it?

That is, what you do is that you issue a “digital currency”, say 500,000 and put them on sale in the market to “get financing”. Thank you, with that you are already telling me that what you are really looking for is money.

Here what I’m seeing is that there are people who are making gold (people from these projects) and a lot of people who are buying IOU papers (“I do not owe you anything”) with great enthusiasm. And all this masked in a system of technological complexity difficult to discern, because only then can you convince people to buy this. I believe that in the absence of so much “complexity”, vague concepts and promises, many of these projects would remain in sight as what they really are: bottomless sacks.

What I continue to see as significant is the fact that a citizen in the country x, y or z, receives his income in the currency x, y or z, which is what he uses in those countries.

The issue of cryptocurrencies, in this sense only serves for these citizens to buy or sell some with respect to others and then exchange them with their respective currency x, yoz, which in the end are the ones that they will have to use for their lives in their countries . In other words, Germany will not allow its doctors to declare their income in Ripples. For the purposes of the German state, the Ripples that a citizen buys and sells are nothing more than speculative operations that do not differ much from the OTC operations that occur in the brokers when these citizens buy or sell Forex, CFDs or binary options.

Blockchain is a pyramid scheme

What we have before us is a completely speculative subject, in which some (the projects) collect money the first (and make their living with it), and the second (the masses) are bought and sold said currencies passing to each other hoping to sell them at a higher price. That and a pyramid system is the same. If the project has real value, and is able to generate foreign currency by providing foreign currency because it enters more than what it spends, great; then tell me where you can buy those shares. If not, then we must know that what we are buying is a totally speculative value of private IOUs (I owe you nothing).

Which of these projects has value?

It’s possible.

What do we want to say that the future world will adopt a blockchain system as a monetary system?

That’s another story, and I agree with that.

Eventually, states will adopt a digital payment system and eliminate the current physical money fiat system.

But this does not mean that for the same use Ripple or Litecoin, to give two examples, but rather a state cryptocurrency with which we can buy and sell online without “intermediaries”, but here comes a problem, because if we give mind, a blockchain system is completely democratic. That is to say, that the whole system, however large, is capable of “monitoring” what the last of the nodes does. In other words, in spite of not having those “intermediaries”, when we pay a “bitx” to Juan, for example, that does not mean that said transaction is not registered by a “central register of the blockchain”. So, in reality, we can be sure that this issue of virtual money is something that the states are going to implement in the future; because with it they can control until the last digital monetary movement you make.

As all this cryptocurrency package is mounted on a topic of trust, I suppose that it will only require a major failure in one of its main systems some day for a hecatomb to occur in the market, with people selling these assets in a way more desperate than the Dutch tulip investors did in February 1637.

In the initial Bitcoin document, by Satoshi Nakamoto, the introduction ends with this sentence:

“The system is secure as long as honest nodes collectively control more CPU power tan any cooperating group of attacker nodes”

Well, the main problem is not in the whole sentence (which in itself is worrisome), but in the beginning of it, because I wonder what could happen if those nodes were not honest, really.

After all, we already know that liars always present themselves as trustworthy people, right?

Greetings and good trading