Why Is Cryptocurrency Valuable?

Updated by Loren Oller verified symbol on July 12, 2022

Cryptocurrencies are nothing if not controversial, with many speculating that digital coins such as Bitcoin, Litecoin and Ether are just a passing fad with no intrinsic value. So why, then, are we still seeing these coins being traded more than 10 years after their first appearance and why are they slowly growing in popularity, both with the public and even some governments? Surely this would not be the case if these coins didn't hold some sort of value.

Here we take a look at what makes a currency valuable in the first place, how we can use these deciding factors to analyse the value of cryptocurrency, and what other influences come into play regarding the value of crypto coins.

Let's see how to determine if a coin is valuable

What Makes Traditional Currencies Valuable?

In order to determine if today's emerging cryptocurrencies hold any potential value, we need to take a look at the closest example, that being fiat currencies, of course. So what factors are used to decide the value of a traditional currency?

Here we take a look at the six main factors that are taken into account when it comes to determining a currency's value:

  • Scarcity: Generally speaking, the scarcity of a currency will play an important part in determining its value. Imagine a currency being as commonly found as blades of grass. Everyone would have access to them in huge volumes, thereby reducing each one's value. In contrast, a currency that is in short supply, whether that's naturally or through control, would be more valuable.
  • Divisibility: To be suitable for a wide range of uses, a successful currency must be divisible into smaller amounts. A currency that can only be broken down into half units is no use if there are items available for sale at values of 100th units.
  • Acceptability: In order for a currency to work, it must be perceived to be valuable by both the government and the people who intend to use it. This is the reason why there's such a definition as legal tender: it's the currency that has been deemed acceptable for economic activities in a particular region. If people see no value in a currency, they have no reason to accept it.
  • Portability: This factor is all about logistics. When gold was a dominant form of currency, it was quickly realised that carrying around chunks of the precious metal was far from practical. This is why modern currencies are created as small, easy to carry tokens, such as coins and paper notes.
  • Durability: Whatever form a currency takes, it must be able to withstand changing many millions of hands, otherwise it would be far too easy to destroy, resulting in loss of value. That's why today's currencies are made from sturdy, hard wearing materials such as metals and plastic coated paper.
  • Uniformity (counterfeit-proof): A currency's form must also be the same for each iteration. One penny in the currency must be the same as every other penny in that currency. This is a way of retaining the money's value but it also serves another purpose: to prevent counterfeiting. Several measures are used to prevent the easy copying of coins and notes, such as intricate designs, watermarks and holograms.

The Evolution Of Currency

The concept of currency has come a long way over time. Initially, trade was completed using the barter system, where people swapped things of perceived equal value. This wasn't very practical, of course, and relied heavily on the availability of the right things at the right time, so some generally accepted form of exchange had to be created. This ranged from cattle to shells to precious metals and even leather, before the first actual coins (shekels) were used in Mesopotamia around 5,000 years ago.

Since then, coins and notes have become the dominant form of value exchange, but even this is being challenged thanks to advances in technology, and not just by the ease with which online payments via credit and debit cards can be made. With the creation of blockchain technology in late 2008, a new form of currency began to take shape that breaks free from the traditional definition of currency. The result is a challenge to the existing monetary system in the form of the many decentralised, open source, anonymous cryptocurrencies that are vying for market share today.

Though we can use the existing factors of determining value to compare the potential of cryptocurrencies to become the new form of exchange, it's important to note that other factors come into play too.

Differences between the traditional and crypto currencies

Value: Traditional Currency VS Cryptocurrency

Using the above-mentioned six main factors of determining the value of currency, here we compare traditional currencies with the emerging cryptocurrencies to see if they have what it takes to become the next evolution of our monetary system.

Scarcity

The problem with scarcity as a determining factor of value is that it can be manipulated and the best example of that is today's currencies. Controlling how much money is circulating at any given time also controls how valuable that currency is. Most currencies are issued by banks and when they increase the supply of currency in circulation, either through minting more coins and notes or by adding a few more zeros to their computer screens, they are changing the value of that currency. This results in the currency becoming less valuable.

Many cryptocurrencies are produced to a specific supply limit (ie. imposing scarcity), which, all else being equal, would stabilise the value of the coins in that no more are going to be produced. Some creators of crypto coins have also devised a way of increasing the value of their coins over time through a process known as burning, which is another means of imposing artificial scarcity, in this case by deliberately destroying a proportion of the circulating coins (virtual, of course) to ensure the value of the remaining supply.

Divisibility

The divisibility of a currency is a function of its value within an economy, with traditional currencies dividing to allow for efficient purchase of available goods and services. When it comes to cryptocurrencies, some are much more divisible than others. Bitcoin, for example, can be reduced to its lowest fraction called a Satoshi, which is a 100 millionth of 1 BTC. This is the result of the very high value of 1 BTC (~US$30,400 at the time of writing). However, though high divisibility is a desirable trait in currencies, it's of no use if you can't even spend such small fractions: spending a single Satoshi is impossible due to blockchain transaction fees.

A little division is good, too much is not!

Acceptability

This is one of the biggest hurdles that cryptocurrencies are facing. A country's legal tender is the largest influence over a currency's acceptability in that region and since coins like Bitcoin, Ether and Litecoin are not (yet) widely accepted in any official capacity (with the exception of El Salvador and the Central African Republic, to date), not many products or services can be bought using the coins. Even though there's a fair amount of trading in cryptos going on right now, the true test will be acceptance by governments and the public.

Portability

At first glance, the issue of portability might seem irrelevant when talking about digital-only currencies such as Bitcoin, as they have no manifestation in physicality, in contrast to the tangible notes and coins of traditional fiat currencies. However, there are still potential problems in terms of portability of cryptos that must be considered. Most people store their coins on the exchange at which they were purchased or in a hot or cold wallet

This means any retailer they hope to purchase from must accept payments from that exchange or wallet. This isn't just an issue of acceptability as you can't simply pop your online wallet into your pocket and carry it about with you. Even cold wallets, which tend to be physical drives, aren't particularly practical. In addition, if you drop the pennies out of your pocket, only those are gone, but if you forget your private key, your entire stack of cryptos is inaccessible for good unless you remember that key again!

Ironically, eliminating portability does not get rid of issues relating to portability.

Durability

Again, compared to the need for durable representations of value in the creation of coins and notes, crypto coins face no such barriers as they are online only. Still, the concept of durability can be applied to their secure nature in the blockchain as transactions are verified by the peer-to-peer network on which they operate, so there is no danger of their destruction in any way.

This is in contrast to today's traditional currencies which, although it's difficult, can still be destroyed or deformed to the point of not being accepted.

Uniformity

The whole point of creating a uniform currency is to prevent counterfeiting, which is something that traditional currencies are forever combating, even today, using measures such as watermarks, holograms, special inks and complicated designs. Cryptocurrencies, being online only, don't need any of these measures, of course, but that doesn't mean counterfeiting isn't a danger.

The crypto equivalent of counterfeiting is double spending, which involves the creation of a secret block that is added to the blockchain before a genuine one has the chance, resulting in refunding of spent cryptos for use again. Double spend is just a theory, however, with no known cases actually being recorded.

Most cases of unscrupulous activity regarding cryptos is the result of hackers gaining access to poorly protected accounts.

Other determining factors on the crypto value

Other Determining Factors

Because cryptocurrencies are a very different form of currency compared to what we've been used to for thousands of years, they break the mould in terms of what determines currency value, with a range of other factors also coming into play that have no bearing on fiat currency values.

Volatility

Cryptocurrencies are probably most known for their volatility more than anything else. Bitcoin is a prime example of a coin that has seen massive rises in value followed quickly by sharp drops, often within a matter of hours. This in itself can result in a lot of instability in the coin's value through sheer lack of confidence as the cryptos aren't guaranteed to hold their value for any length of time, which then results in more instability, creating a vicious cycle.

Though the value of traditional currencies can fluctuate in relation to various stocks, cryptocurrencies are notoriously difficult to predict due to their volatile nature.

Perceived Value

There's a real mix of viewpoints when it comes to cryptocurrencies in general, with some people touting their decentralised nature as a potential solution to today's massive economic and financial inequality, while others claim cryptos are nothing more than a dangerous fad. As long as there is division in this respect, the value of cryptocurrencies will remain unstable and unpredictable.

Opinions

In today's world where everyone has a public voice thanks to social media platforms, certain voices carry more sway than others and although some industries can be affected as a result, perhaps none are impacted quite like cryptocurrencies. The value of crypto coins can be affected by a single person's speculation (eg. Elon Musk's claim you could buy a Tesla with Dogecoin or Bitcoin) or announcement that they have just bought or sold coins. We're starting to see more of a crackdown when it comes to influencers advertising crypto coins as an investment opportunity too, indicating just how influential seemingly irrelevant factors can be.

Environmental Impact

One very relevant influence on the value of cryptocurrencies comes into sharp contrast against the background of climate concerns. A University of Cambridge study found that the annual energy consumption of Bitcoin mining topped 110 teraWatt hours, which is the equivalent to that of small countries like Sweden. With fossil fuels still accounting for a large proportion of our overall energy supplies, this translates to a lot of carbon production.

On the other hand, many mining companies have committed to using greener sources of energy, while others are pumping generated heat into their local communities in an effort to offset their carbon footprint.

One day cryptos may replace the traditional money

Will Cryptocurrency Replace Traditional Money?

It's difficult to say what the future holds for cryptocurrencies. Using the six main factors that determine the value of currencies to decide the value of cryptos is a good starting point. There are indeed a number of factors that crypto coins share with successful currencies of today, such as their scarcity, divisibility and portability. At the same time, other factors could present a problem in terms of value, such as a lack of acceptance

However, it's important to realise that many other factors are also at play, including advancing technologies, growing economic and financial inequality and general distrust of centralisation. Whether these factors will outweigh existing drawbacks to push cryptos into mainstream circulation remains to be seen.

Final Words

Cryptocurrencies are at a difficult phase in their development, with people still split over whether it's the next step in our financial evolution or the latest fashionable fad to be avoided. That in itself influences the value of these modern coins, as do a variety of other factors. It can be agreed, though, that cryptocurrencies do hold some potential value according to the six main factors determining currency value as discussed above. It may well be time for a new set of determining factors as our technology continues to improve and we leave behind the concept of carrying cash altogether.

FAQs

Still have questions about whether or not cryptocurrency is valuable? Check our FAQs.

What is influencing the value of the coins?

A wide range of factors influence the value of any currency. These include scarcity, acceptability, durability, uniformity, portability and divisibility. Cryptocurrencies tick a few of these boxes, but their value is also influenced by other factors such as volatility, environmental impact and public opinion.

Will cryptocurrencies hold their value?

It's impossible to say whether cryptocurrencies will eventually settle into some sort of stability. At present, the one thing we can say for sure is there are no guarantees.

Where can you use cryptocurrencies?

One of the biggest factors preventing cryptocurrencies from being more widespread is the fact that they aren't accepted in many places just yet. However, one industry has seen a huge increase in the acceptance of a wide range of crypto coins and that is the online gambling industry. A growing number of online casinos are accepting cryptocurrencies both as a form of payment and as an accepted form of play currency on site too.

Latest News View all

Global Poker: Fall Carnivall

September 26, 2022

Global Poker never ceases to amaze us! This time they are welcoming autumn in no other better way than with their first-ever Fall Carnival event that will go on from September 26th to October 2nd! Bear with us with this short article where we will explain anything you need to know about this fun event!

Read more

Global Poker: Micro Thunder Series V

September 09, 2022

Once again one of the top US and Canadian social poker casinos, Global Poker, will be hosting the legendary Micro Thunder Series for the fifth time! From September 11th to 18th you will be able to witness the madness where over 22,260,000 in Gold Coins and over 74,200 in Sweeps Coins are guaranteed in total prizes. Find out how you can participate with a small purchase and potentially win tremendous amounts.

Read more

Most Popular

100 Best Payout Online Slots

November 23, 2021

It is common for a gamer to want to know about the best slots to play. And this includes the ones that are the best for payouts. Of course, there are various developers operating today, creating entertaining, high-quality slot games with amazing payouts included. Therefore, we have put together a selection of the best payout online slots for you to experience and separated them into their respective developer sections.

Read more

Biggest Gambling Cities Across the Globe

August 13, 2021

Gambling is not something that is restricted to one specific area of the world. In fact, it is present in more countries than you may know, be that in an official way or a bit more of an underground format. Whatever the case may be, gambling has become an appealing pastime for many people all over the globe. So much so that various cities around the world have risen to obtain the status of being the biggest gambling locations today.

Read more

Euro 2020 Final Odds Italy vs England - Who Will Win It?

July 09, 2021

Italy and England will face each other on Sunday at Wembley in what has been an existing European Championship tournament. Hosted a year later due to the pandemic, the Euro 2020 will come to an end on Sunday at 3 pm, with the final taking place at Wembley. Is it coming home? Or is it coming to Rome? Let’s see what the bookmakers say.

Read more

How Do No-Risk Bonuses Work?

June 09, 2021

Let’s face it, most of us love a bonus. These are the joyous treats that keep us ticking and give us that little bit extra. Making us feel welcome at our favourite online casinos, or rewarding us for our loyalty. They come in all different shapes and sizes these days, as sites compete for our business.

Read more

Biggest Online Jackpot Wins of Last Year

March 26, 2021

It is always a momentous occasion when someone wins an online jackpot from a casino. And while many of us believe that they do not come around so frequently, several big winners were recorded in 2020. So, keep playing and you never know, you could be the very next person to claim a jackpot payout. Let’s have a look at the biggest online jackpot wins of 2020.

Read more

Bankroll Warriors Gets New Host for 2021

February 09, 2021 CasinoTopsOnline is re-launching its exciting slots and casino Twitch stream Bankroll Warriors with a brand new host for 2021. At different times in his life, Dreezy has been a professional poker player, gambler, esports bar owner, trucking business owner and Twitch streamer. Read more

£100 Deposit Bonus UK

February 07, 2021

UK online casinos that offer a £100 deposit bonus are quite common, especially as we see an increase in the number of online casinos, which results in greater competition between them - and better offers for players!

Read more

Bankroll Warriors is Back With HUGE NEWS

February 03, 2021

Bankroll Warriors is our hit casino podcast, offering you a look into the world of the best slot games online at the top casinos around. So get right for lights, camera, and spin! Whether you’re after discovering the best bonuses or just after some suggestions for a new game, our new all-star streamer team has got what you need.

Read more

5 Favourite Slots by European Players

December 01, 2020

Europe is a hotbed for casino gaming activity, and there’s little wonder. With locations like Monte Carlo, London and Malta all playing host to exciting casino escapades, it has quite the popular appeal for players. It is also due to this that many online casino slots have become popular in their own right with players from the continent. So, which ones can be considered the five favourites of European casino players? We’ve got a look at each of these and their inbuilt features below.

Read more

New Series of Podcasts by Our Very Own Bankroll Warriors!

November 12, 2020 Bankroll Warriors, better known as Jon Pardy and Drew Gonzalez, have teamed up with CasinoTopsOnline to provide viewers with a series of exciting, livestreamed games at the best online casinos. A combination of casinos hand-picked by experts and the professional play brought to you by the Warriors themselves will take casino livestreaming to a whole new level. Read more
Loren Oller
Loren Oller verified symbol Author
224 Articles gmail linkedin
I consider myself to be an avid guitar player, sports enthusiast, and a big fan of blackjack and social casinos. My task is pretty easy to resume.. make sure you are well informed on all US casinos that might interest you. I've been writing reviews based on my experiences for a while and I'm happy to say that my work will truly help you even if it's just by telling you the legal gambling laws of a state or the top games that are trending right now!
More about this author

Reviewed by Julia Attard, Senior Author