Unlike traditional currency, determining the value of cryptocurrency and electronic cash is a bit tricky. As the CTO of a company that's working to make online payments easier, I can understand why so many within the global business, legal and political environments are struggling with the concept.
The U.S. dollar, for example, has its value determined by the exchange rate, treasury notes and measurement against foreign exchange reserves. As Joe Weisenthal explains in Business Insider, the dollar has “intrinsic value” because it’s the only currency that the government accepts, and it's what the public uses for commerce. Similarly, gold has intrinsic value because it can be used for jewelry.
Cryptocurrency such as bitcoin doesn’t have the same luxury. While it’s true that cryptocurrency has numerous benefits, none of that explains the actual price of coins. And it only gets more complicated when attempting to define what exactly bitcoin tokens are.
Venzen Khaosan explains on CryptoCoinsNews: “Bitcoin’s value is a perceived regard for its benefits and usefulness. The term value, as used here, is not to be confused with price, which is the monetary cost of a bitcoin. The use and consequent value of Bitcoin is a result of many aspects of its innovation, its network, and its features.”
How to Value Bitcoins
The value of bitcoins can be determined in different ways. For example, regarding their scientific value, coins have solved the Two Generals Problem. (This was a thought experiment devised to illustrate how challenging it is to coordinate an action by communicating over an unreliable link, and the first computer communication problem thought to be unsolvable.)
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Beyond their scientific value, coins have technological value in that they are censorship resistant and can’t be shut down. They also have social value because they use public ledgers and decentralized systems, which removes the need for a trusted third party for transactions.
There is also significant design value in using them as currency, secure storage and a decentralized public ledger, and the cryptocurrency model encourages community contribution and collaboration. Other areas of value with coins relate to their network value, contract and application value, and their transmission and storage value, as they work for all of these things.
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