- Published on
The Value of Currency
- Authors
- Name
- Sam Kececi
The value of a currency exists solely as the market valuation of the collective effort that has been taken through any variety of means to make it legitimate. This effort can positively and negatively affect that valuation (as the market identifies positive and negative things).
Examples (in the ascending order of value):
- I mint a new crypto-currency. Not a single person knows about it other than me. It has zero value.
- I mint a fixed-supply token for my consulting business in my small town (I cannot do remote work).
Each token is worth one hour of my time. I let people in my small town bid on the tokens. Most people donāt know wtf a ātokenā is or how to bid on it.
Some tech savvy people are interested and figure it out. The ācollective effortā of this token is the value of my service minus the barriers to entry. The value is very low.
- Years later, due to the ubiquity of crypto-currency, every single person in my town has an app on their phone that can easily create a wallet, exchange tokens. As a result, the value of my token has increased. The value of my consulting time is still the same. But the barriers are lower due to the value (work, development effort) that many crypto evangelists, marketers, and coders have added universally.
- I identify a flaw (high transaction costs) with Ethereum, and I invent a more scalable technology (call it Dolana). Developers and users identify that they can now do everything that they used to do with ETH, but cheaper and faster. Now more people use it than ETH. Iāve created a currency of value.
- I am a miner. I mine a metal that is so valuable because it is incredibly shiny. I decide to weld the metal into circles and exchange it for food and clothes. People want my shiny circles because they are shiny, but mainly because other people want them, so they can exchange them for food and clothes. These other people want them because they are shiny, but mainly because other people want them, so they can exchange them for food and clothes.
- I found a new government and overthrow a former colonial empire (call it the United States of Emerica). Over the years, my new country amasses technology, wealth, and military power surpassing every other organized group on Earth. Through the threat of punishment and confinement, my country ensures that everyone obeys the law, including anything monetarily related (taxes, etc). I create and mint a currency that must be used in my country. I offer pieces of paper which have a special stamp. If you do not have this stamp and you try to participate in my incredibly vibrant economy, my military will put you in jail. Iāve created incredible value.
- A friend of mine founds another country, called Eturkey. He tries to apply economic principles from a book written by a magician 1400 years ago. Most people think this is dumb, so they donāt want his currency anymore. The value of his currency falls, in spite of the innovation and productivity of his nation.
āJust a few years ago it was considered impossible to start a new global currency. Now anyone can do it from a laptop.ā
This is true. But it makes no statement on value.
If I start a crypto currency, spend $10 million on online marketing, garner developer support, invent a new technology that I tie to the currency, get massive engagement, iterate on user feedback, build a publicity team to translate into all languages, penetrate all cultural barriers, then yes, Iāve created a new global currency.
But the value of this currency is simply a reflection of the value that myself and this massive organization of people has generated (both through technology but also through traditional means of marketing and sales). In just the same way that a startup is valued by the collective effort of its founders and employees, it's product, it's vision...
Crypto-currency doesnāt hold value in and of itself. It simply drastically lowers the barriers to entry ā from needing: a military to instill fear of punishment, a legal system to identify counterfeiters, physical jails to punish said counterfeitersā¦ to needing: a computer, an internet connection, social connectivity, and good execution.
Crypto can intangibly store value - but that is not unique. Why is bitcoin the most valuable crypto by market cap? Not because it is the best technology, but simply because it currently stores the highest sum total of concentrated value directed toward it - in concrete terms, because it has the highest sum of
recognition + likelihood to be used widely (causally related to the former) + likelihood to be given further future support (advertising, developer ecosystem, etc)