Real Value of Bitcoin and Other Cryptocurrencies – Introduction

Over the past decade, cryptocurrencies have grown from mere digital experiments to headline making financial assets. 

Bitcoin is trading near an all time high around $90,000 and this journey has been marked with one burning question “Is it actually a digital gold or a speculative bubble waiting to burst”.

Cryptocurrencies are decentralized, borderless, and often operate without any central authority which makes the question of the real value of Bitcoin, a genuine concern.

Traditional assets like stocks are backed by company earnings and assets. Even fiat currencies are backed—at least theoretically—by the strength of the governments that issue them which is not the case with cryptos.

So, where does their value come from? Is it based on scarcity, like with gold? Is it driven by utility, like software? Or is it simply the result of supply and demand in a speculative market? 

In this article, we will try to understand the key drivers that influence the real value of bitcoin and other leading cryptocurrencies.

The existence of numerous cryptocurrencies stems from their different purposes, use cases, and technological foundations. Each cryptocurrency aims to solve specific problems or cater to different niches.

Bitcoin (BTC)

Bitcoin is the first cryptocurrency invented around 2008 by an unknown entity under the pseudonym of Satoshi Nakamoto. 

Utility:

• Bitcoin enables transactions globally without relying on centralized systems which are cheaper and faster than traditional modes.
• Only 21 million BTC will ever exist. Bitcoin is often referred to as “digital gold” because of its fixed supply and resistance to inflation. 
• No one controls Bitcoin, making it attractive for people in oppressive or unstable regimes.

In 2021, El Salvador adopted it as legal tender. Online businesses have started to accept bitcoin in return for their services. 

Now, if more and more people are using Bitcoin to transfer money, its adoption, acceptance and demand will increase which in turn increases its value since we only have a fixed number of bitcoins.

So, the real value of bitcoin lies in the fact that it allows global transactions which are faster, safer and cheaper.

Ethereum (ETH)

Ethereum is 2nd to Bitcoin in market capitalization, created in 2013. It’s a programmable blockchain (database), which means it’s like a global decentralized computer that anyone can build apps on.

Utility:

• Ethereum made possible the smart contract system. Smart contracts are self-executing codes when certain conditions are met without need of any intermediary e.g. automatic insurance claims, lending money.
• Developers can build apps directly on top of Ethereum (aka Decentralised apps), since it’s programmable, using smart contracts not owned by any single entity. 
• Ethereum lets one access banking services like lending, borrowing, coin swap, and earn interest without any paperwork using smart contracts.
• Ethereum hosts platforms like OpenSea, where non-fungible tokens are created, bought, and sold.
  

Many governments are experimenting with Ethereum-based tech for their digital currency, startups are building in various sectors like gaming and finance on the Ethereum network, law firms are experimenting with Ethereum smart contracts for automated legal agreements.

That being said, Ethereum looks good for long term success and adoption.

Solana is being seen as an Ethereum killer which has utilities same as mentioned above. But it is way faster and cheaper than Ethereum. 

For now, Ethereum is a more trusted and battle tested smart contract platform which has a massive developer ecosystem and liquidity.

Ripple (XRP)

XRP is a cryptocurrency developed by Ripple Labs. It is designed to provide fast, low-cost, real-time global money transfers, especially for banks and payment providers.

While one may wonder, any cryptocurrency may be sent via wallet, then what is so special about Ripple. Settlement of transactions is almost instantly with a very low fee which is not the case with other cryptos.

XRP has been especially designed for banks and payments providers. This is how transfers with Ripple work:

You send $1000 to a payment provider which is a Ripple partner, to send money to the UK. Your $1000 dollar automatically gets converted to XRP and then sent via Ripple blockchain to the UK instantly where it then gets converted to Pounds.

This is faster, secure and cheaper than traditional wire transfers. XRP usage is on the rise, private and government financial institutions are partnering with Ripple to leverage blockchain.

Chainlink (LINK)

One of the most important projects in the ecosystem, Chainlink is the middleman that brings real-world info to blockchains safely and reliably.

Smart contracts need real data like prices, weather, gaming data, news etc as blockchains can’t get these on their own.

People pay LINK to use Chainlink’s services e.g. a DeFi app pays LINK to get accurate BTC/USD price updates.

As the demand for blockchain applications and smart contracts increases, the demand for LINK will also increase.

Filecoin (FIL)

Filecoin is a decentralized storage network that allows users to store, retrieve, and share data in a secure and efficient manner. Providers (miners) offer their free space to Users and receive FIL tokens in return.

Unlike widely used centralized cloud storage providers (Google Drive, Dropbox), Filecoin stores data across multiple independent nodes (computers), ensuring better security, privacy, and resistance to censorship.

Filecoin is offering storage for decentralized applications (dApps) and NFTs.

Real Value of Bitcoin and other Cryptocurrencies – Conclusion

This goes without saying that Cryptocurrencies have gone from tech experiments to global financial assets. They are leading us to a new era where problems are being solved with speed, accuracy and economically.

Understanding the real value of bitcoin and the ecosystem gives us the confidence that they are here to stay and are not just speculation assets.

If you are seeking value and looking for investing for a long time, understanding the fundamentals and utilities of cryptos is important. One can analyze a cryptocurrency on the following fronts:

• Utility (What can you do with it?)
• Adoption (How big is the network?)
• Security & Trust
• Economic Design (Tokenomics)
• Scarcity (How rare is it?)