That people are just artificially creating its value. And you know what, thats true. I also hear that theyre not real because its only virtual money, not physical. Thats true as well. But in this article, I would like to put these into context.
Im not trying to convince you to buy crypto, just putting things in context. So lets start with the argument that cryptocurrencies only exist in the virtual world and that if all computers were wiped out, none would be left. Thats undoubtedly true, but the same can be said for the currencies that we use in our daytoday lives.
Take the dollar for instance: there are about 14.4 trillion US dollars in existence, but only 1.7 trillion of those exist in a physical form that is coins or banknotes. Thats just 11. The remaining 89 is just virtual money, stored as a number in the databases of financial institutions.
So that makes our real money not so different from cryptocurrencies. The second thing Id like to address is that people seem to be under the impression that paper money is worth something because its backed by a commodity like gold. We call this the gold standard. A system in which a currency is tied to a certain amount of gold. Doing this has two implications: first of all, it fixes the value of a currency to the value of gold.
Thats believed to be good because gold prices arent volatile. And secondly, the supply of a currency is now limited to the amount of gold you have. If you want to create more money, you have to acquire more gold. The gold standard was in use for quite some time, but the system was abandoned in 1971 after president Nixon decided to end the dollars convertibility in gold.
That meant the value was no longer fixed to gold, and the dollar was allowed to float. It also allowed the government to control the supply of money by printing more whenever needed. This could be done to limit the impact of an economic crisis, for instance.
Other countries soon followed, and the world switched over from the gold standard to what we call fiat money: a currency without intrinsic value. In fact, currencies only have value because governments have declared them to be legal tender and because we all agree that its worth something. Thats it. Our modern monetary system is only held upright by our belief that money has value. Were willing to go to work every day to get payed because we believe that someone else will exchange our hardearned money for something else, like for buying food or renting a home.
Its actually a selffulfilling prophecy. We all trust that our money has value and therefore it has. If we stop believing in the value of money or the government can no longer guarantee it, we see hyperinflation. The value of money drops and the prices of goods increase substantially.
Weve seen this a few times in history. For instance, in Germany after the First World War. Prices of goods doubled every two days. At one point people burned their money because it was cheaper than buying firewood.
So if our money has no real value, we should all start buying gold, right? Well, we could take it one step further and ask ourselves: why is gold considered to be valuable? I mean sure, its a shiny metal with useful properties.
But is that enough? Could we say that gold has no real value either? That we all believe and agree that it does? Well, yeah!
Thats completely true. Throughout history, gold has been considered as one of the most valuable materials out there, probably because of its unique look. But thats about it. The only thing that gold has going for it is thats relatively rare, and thats it crucial for some industries like electronics. But other than that, gold is just like money.
Worth something because we believe. Alright, time for a conclusion. People are right when they say that cryptocurrencies have no value and are worthless.
But theyre wrong to think that the Dollar, Euro or Yen are any different. We created them, and each of us is keeping the idea alive that its valuable. So that was it for this article.
I hope this brought some clarity to the topic. Let me know your thoughts in the comments below. If you liked this article, consider subscribing and as always: thank you so much for watching.p