Why does the dollar keep its value?
If you're only a little bit familiar with the monetary system, you'll know that fiat currency is not sustainable in the long run. The reality is that it's just a bunch of debt getting funneled around and more debt is created every day. As long as fiat currency exists, the debt will exist. If all the debt would be repaid, there wouldn't be a single dollar in circulation.
This is probably why you're here on Steemit as well. You've lost your trust in your local currency and moved to cryptocurrencies. If you're a good investor, or just lucky, you could have made good profit on your savings by putting them in Bitcoin, Ether, or many other currencies. And you still can!
However, you can also lose a lot of money if you're not careful. Over the past few years there have been multiple Bitcoin "crashes". I remember my secondary school economics teacher arrogantly telling me that, after we saw Bitcoin's first big correction in november 2013, "it had become clear that Bitcoin wasn't a good investment anymore." Joke's on him: according to coinmarketcap.com, today Bitcoin is worth almost $3,400 USD. That's almost triple of the all time high at the time.
The state creates artificial value based on force
The most important difference between fiat currency and cryptocurrencies is that the value of fiat is determined by force, while crypto gets it value through voluntary exchange instead of governmental coercion.
Let's take the Euro as an example. The Euro was created by the European Central Bank, after which most member states decided to issue it in their respective countries. In other words, various states forced their people to adopt a currency. It doesn't matter whether you wanted it or not, you had to use it.
But you can choose to simply not use the currency, right?
Well, no. The thing is that the state takes money from its citizens through taxation. Therefore, you are forced to pay a cut of every transaction you do to the government in Euros. This is how the state creates demand for the Euro. It is an illegitimate demand for Euros. If you prosper, the state demands that you do your business in their currency so that they can tax you. This is the main reason fiat currencies keep their value: the government forces people to use it, driving up demand, and thus its value.
Fiat gets its value. Crypto deserves it.
The difference with cryptocurrencies is that their value is solely determined by supply and demand. Of course, there are exceptions, but this is the main trend. This means that crypto is traded through voluntary exchange. The supply and demand of cryptocurrencies is genuine and not likely to be the subject of manipulation through force.
Therefore, it is unreasonable to say that cryptocurrencies are in a bubble. The fact that the price for crypto is so high at the moment, is not because people are forced to use it. This is the price that people agree on. Although the crypto market will probably see various corrections in the future, this is a healthy occurrence. It certainly doesn't mean the end of the crypto world when the price drops: it is merely a consensus of the people who exercise the demand for it.
As long as this principle stays, cryptocurrencies will be more sustainable than fiat currencies in the long run, regardless of their volatility. Crypto is the future, so be sure to be one of its first adopters!
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Great post
Thanks
Have you seen the Mr. Robot series ? If not you may be interested, and season 3 is starting soon. Better to watch it from the start first.
Cheers
I haven't heard of that series, but I'll check it out! Thanks.
Nice!! Clear!!
I hope you get a lot of votes...
Thanks!
Great post again! I hadn't looked at crypto this way yet, I've always kept in the back of my might that it might be a bubble, because other bubbles have acted similarly. I never stopped to think what causes something to be a bubble. You have a good point saying that we're all in Crypto voluntarily.
But still, nobody forced us into dotcom startup companies in the early 2000's. It was a free market and people joined voluntarily, but it was still a huge bubble that burst. Why would that not be possible for crypto?
I think the dotcom bubble has the same issue as the "crypto bubble". It's not necessarily a bubble, but rather a correction similar to those happening in the crypto world. I think that's how the market works: when something is over-valued, people will soon realize it and "the bubble will pop". When a technology such as the internet or cryptocurrencies is still very young, a lot of people will try to compete. However, some competitors will come out on top and be more popular. This can happen to crypto as well. Maybe Bitcoin will stay the biggest coin and many others will fail. Maybe Bitcoin will fail and another coin will take its place. Who knows...
I'm not trying to get into a petty debate over semantics, but it sounds like you're saying it's not a bubble but it is a bubble :P
But yeah, I do expect the market to keep balancing itself out, as it usually does. A lot of crypto's probably won't suvive and some unexpected ones will soar. Whoever manages to predict which ones those are will get rich. So it goes.
As you say, you can either speak of a bubble that pops, or a market that balances itself out :D
jeez, mate are you trying to outtype daddy @dwinblood !? I always see these interesting articles in my feed and when I am like "hey, this is a pretty good author" and then I see your footer under it ;D.
This is meant as a compliment though. How does Steemit get value? Because you, I and thousands of others invest time (and money) into it.
I think we talked about every currency being a ponzi scheme, but Crypto just being the much preferable "scheme" compared to fiat. I am thinking about making my own currency right now without encryption or using Steem as encrytpion.
Boostcoins for League of Legends
Thank you very much! I'll take that as a compliment :D @dwinblood is a very intelligent fellow.
The past few days I've just been writing about some stuff that was on my mind, and I thought writing about it would make me more articulate.. So I'm glad you like it! I wrote this article to explain the subject to @steemspoker.
A cryptocurrency for gaming sounds great. I believe there is SkinCoin to buy skins for Counter Strike games, so a League of Legends coin might hold some potential too!
I actually want to make it a small crypto by default that I own, just to show how easy you can create a currency, not because I think it will be the next big thing
Great post once again. Whatever the outcome, these are some exciting times for cryptocurrencies, thats for sure.
Shots fired at that economics teacher though... ;)
Haha meneer Bomert toch :D
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This is contradicting. If I had a choice I would buy/sell in a currency for which I don't have to pay tax of course.
Could you explain that a bit more? It doesn't matter in which currency you trade. If you have to pay tax, the state demands you better pay in their issued currency, regardless of which currency you use.
For example, I can sell my wares in America for dollars, but if the state forces me to pay taxes, I need to pay them in euros. So, I have to 'buy' euros, thus creating more demand for them.
With Bitcoin you can avoid taxes because it's fairly anonymous, of course, but here in the Netherlands the law requires you to pay capital gains tax over it in euros. It's the same idea.
Sure but they can't if they cannot prove you made the transaction in the first place. They cannot force you either, check out the website dereunie.info I've met with these guys. Also @kencode is a very cool guy, they make the Blockpay app btw! You can buy stuff in stores by paying in crypto. It works on bitshares.
That's true, but imagine how that would work out. For months you pretend you don't make any money and all of a sudden you buy a house worth half a million euros. Do you think nobody is going to notice at the government?
Do you know about the Toine Manders case? They don't have evidence of any crimes, but they basically ruined his career because they suspect him of tax evasion.
Blockpay sounds really cool! I'll check it out.
I didn't hear about the Toine Manders case. Yep trust is key but the government... I actually think Steem is a step in the right direction, you earn a reputation, Steem Power... those are really valuable things you cannot buy erm expect for SP yikes!
I folllow @kencode for Blockpay related news. I think he's either the CEO or main project manager.