How Can There Be Value in Crypto Currency

As hard as I try I cannot get my head around this stuff. I understand how it works and I understand block chain. I do not understand the basis for its value. I also do not understand how you can “mine” new crypto currency out of thin air. Something that comes from nothing is usually nothing.

I guess it is backed by the full faith and credit of a guy named Bob.

Any references that are insightful.


Well, you can also create stock options out of thin air - by writing puts, for instance. Puts do seem more substantial to me than bitcoins, but both are based on social agreement. Regular money is based on social agreement, for that matter.

Tulip bulbs had more of a physical reality, but once upon a time their prices got bid up to what we would consider ridiculous multiples of any intrinsic value, especially since you can’t even eat them.


I can’t explain how crytocurrency/bitcoin derives it current value. I guess it is based on supply and demand though I can’t put my hands around why it vacillates so wildly. I guess it is because it is still relatively illiquid. I don’t really know.

Mining on the other I hand get to a certain degree. Miners are the ones verifying the transactions in the blockchain. This takes computing power and energy both of which cost the miner money. The miners are paid for their services else the whole thing would crash. Nobody would spend the money to mine.

Interestingly, there is an upper limit to the number of bitcoins that can be in circulation. I believe it is something like 21 million. At that point, miners will no longer be paid in bitcoins, but will have to be paid enough of a transaction fee to make mining worthwhile. Don’t know what denomination they will be paid in at that point and they probably won’t like the taxes!

I’ll try to find some links later.


since you can’t even eat them.

Apparently one can. I read a little story not long back about a sailor having a very expensive meal when he mistook a tulip bulb for an onion, back at a time when tulips were the thing.

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I do not understand the basis for its value.
In essence (for bitcoin - some of the more esoteric cryptocurrencies can have other attributes), it’s a currency based on the provable trust provided by the block chain. What is it worth? What someone will pay for it. I can transfer it to anyone else’s wallet - and everyone KNOW’s its been transferred - they could see the transaction in the block chain.

Pluses? Portability, anonymity, no transaction costs

Downsides? lots

The value of any commodity - and currencies or in this case ‘currency’ are the purest commodities that exist - are purely driven by supply and demand.

One day gold is worth $250, later it’s worth $1900. And vice versa.

Look at a Japanese Yen chart sometime and tell me how you’d value it. Pretty darn difficult!

I kind of agree, and kind of disagree.

Bitcoin was the first (2009) and is the best known cryptocurrency. Shortly thereafter (2011) came Litecoin and Namecoin (Swiftcoin as well, now inactive). There are now, per, 1,219 cryptocurrencies currently in circulation. Collectively, they rely on relatively few hash algorithms which underpins the currency.

At present, Bitcoin (cap = $96,193,147,424) and Etherium (cap = $28,348,688,618) dominate the market for cryptocurrencies, 490 cryptocurrencies have a market cap under $100,000, 220 cryptocurrencies have a market cap over $10,000,000 and only 60 have a market cap over $100,000,000. Total market cap for all 1,219 cryptocurrencies is $169,322,974,318 (Oct 27, 8:00 PM UTC) which includes 274 currencies with unknown market cap due to the fact that there are an unknown number of units in circulation.

Similar to gold, there is zero productive capability, but unlike gold, gems and the like, there is nothing tangible with a cryptocurrency. However, there are 162 exchanges that trade one or more cryptocurrencies but, only 10 of them report 24 hour volume over $1,000,000.

No one is making new gold. Unlike a cryptocurrency, the amount available is unknown. While each cryptocurrency has an upper limit to the number of units which can be mined, the number of cryptocurrencies that can be created is unlimited.

In that none of these are backed by anything tangible and virtually anyone (with the knowledge and appropriate computing equipment) can create a new cryptocurrency I am of the opinion that each new currency cheapens all of them.


The value in Bitcoin is the network.

Being able to quickly send money from New-York to Beijing for almost nothing is the real value of the Bitcoin network. And also, you don’t have to pay a bank an additional 3% fee (spread) in order to convert your currencies.

Thanks for all of the responses. I get the aspects of how it works and now my suspicions seemed confirmed that there is nothing behind these currencies but an agreement between two parties that “x” amount of bitcoins as payment is worth “x” amount of product in return.

I guess I will start “Hyde Coin” and use it to pay my MF subscriptions. Wonder if the bank will accept Hyde Coin for loan payments?



Your suspicions are wrong. There is something behind some currencies and/or tokens. The network.

You need an infrastructure, a protocol to be able to send money anywhere in the world. This is not nothing. It is web 3.0

Being able to send “money” anywhere without the usual controls and costs is certainly value … especially to drug lords, terrorist organizations, and the like who want their financial dealings to be invisible … but that is not what has produced the enormous gain in the value of bitcoin … that is pure speculation.


Hi Bartolo,
by value I have meant what “backs it up.” Long ago in our country is was gold and silver. Now the full faith and credit of the US government.
I realize many nations’ currency are not backed up by much and as a result their economies suffer.

Networks and infrastructure is something I know a lot about. Masters in Computer Science, over 40 years with Bell Labs and Cisco Systems. The infrastructure is the internet, protocols are ISO consistent through layer 3. Obviously there are security protocols and transaction protocols as well as the ability and resources to block chain. It is the full faith and credit that I worry about (sort of like accepting Confederate money in 1866.) Seems like a good way to get screwed.


Tamhas wrote: "Being able to send “money” anywhere without the usual controls and costs is certainly value … especially to drug lords, terrorist organizations, and the like who want their financial dealings to be invisible … but that is not what has produced the enormous gain in the value of bitcoin … that is pure speculation


Guys, sorry, but you get it all wrong.

Drug lords and terrorists, really? No, they use cash and wire transfers in off-shore accounts.

A good book on the blockchain and Bitcoin will serve you well IMHO.

As for the price, we agree. Speculation pushed the price, as for any asset class.

Drug lords and terrorists, really? No, they use cash and wire transfers in off-shore accounts.

Historically, yes, but in the future?


My goal is not trying to encourage you to buy Bitcoin. However, it is important to see how the blockchain may disrupt traditional banking.

Personally, I started speculating in cryptos in 2014 by buying some Lumens. I sold everything in April 2017 and bought Bitcoin, Litecoin and Ethereum.

I sold everything last week. Price action looks like the dotcom bubble right now. It is a clear red flag. That being said, I believe the blockchain right now is like the Internet in the mid 90s. It is here to stay. Which token will be the big winner? Probably Bitcoin, but we don’t know.

Right now, it is safer to invest in companies that are involved in the Blockchain ie: IBM, Overstock etc.




Governments long to abolish cash. When that is achieved, it is not only ‘drug lords and terrorists’ and tax evaders who will be affected. The government and bureaucracy will from that point on know everything about you. Those who find that proposal a comfortable and risk-free one seem to me to be lacking in a knowledge of the regrettably full history of governments behaving badly. To know is to control. The citizens of E. Germany did not find the maxim ‘if you have nothing to hide, you have nothing to fear’ quite worked out. I have nothing to hide. But I have much to fear - who knows if my strong libertarian views and belief in free speech might not one day mean that I need ‘re-educating’?

Saul rightly does not like politics here: I am simply making the point that the philosophical case for crypto-currencies is not confined to gangsters. Government has often proved itself to be the worst gangster of all.


With that in mind, I take the opportunity to mention something Americans are not generally aware of regarding the UK investment scene because I notice that the outcome of ‘Brexit’ is regarded as the only risk to be aware of. That is not the case. The big risk is that, for the first time in the country’s history, a Marxist party is actually leading in the polls. I am saying the UK could have a Communist party after the next general election. The world seems to be slow in taking that on board.


by value I have meant what “backs it up.”

Block-chain based trust just like metal backed trust in gold and government backed trust in fiat money. It’s that simple.

Denny Schlesinger

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I have a different impression.

My view is that the real value of bitcoin (or any cryptocurrency) is anonymity and the ability to move money without abiding with currency control, taxation or any other such obstacles.