Perspective 3: Cryptocurrency as currency
Seemingly obvious, cryptocurrency may be seen as a currency, deriving its value from the economy that uses it, i.e. requires it. As a reminder, the value of a currency is in what goods you can buy with it, and not in how much of other currency (e.g. USD) you can get with it1.
Consider a utility token that allows purchasing exactly one gallon of oil, and that is the only way to buy oil. Regardless of the amount of tokens minted, there will be a demand for this kind of token for as long as there is a demand for oil2.
From this perspective, Shiba Inu burning ETH and rising its price is comparable to Bitcoin mining spending electricity and rising its price3, or Ethereum miners using Nvidia GPUs and rising their prices to “more than what money can buy”.
If you want to participate in the US economy you should use USD; EUR for EU; and ETH in Ethereum. The value of a cryptocurrency is given by the economy that is accessible through it, e.g.
- In the case of BTC it may be quite similar to the regular economy, e.g. buying a Tesla. It may also be the closest option to paying “in cash” on the Internet, without intermediaries. BTC is “Internet money” and in a way the first truly global currency.
- For smart contract enabled blockchains it may be the participation in their respective economies, e.g. DeFi.
- And, finally, the myth is that the dark web runs on cryptocurrencies. However, most blockchains are fairly transparent and not best suited for crime4, requiring additional services to preserve anonymity, e.g. a tumbler.
In this perspective, cryptocurrencies are acquired not as much because people want to invest in them as because people have to spend them, to do something else.
That would be a petitio principii, not very different from a Ponzi scheme.
Oil producers may choose to get rid of the token at a discount as soon as they receive it, but there will always be someone willing to get more of it.
It provides incentives for production, in the long term. In the short term, the limited elasticity of production translates into higher prices.
There was no shortage of money in crime before crypto. It is to be seen if crime is over-repressented or under-represented in crypto.
Cross-posted from the Sigmoid newsletter
