In his 2022 Nobel Prize acceptance speech, Nobel Prize winner Douglas Diamond said that he considers cryptocurrency assets to be of zero value (absurd assets). Other famous economists such as Krugman, Cochrane and Andrefatto have also made this claim.
Cryptocurrencies have become a part of many people’s lives. The issue of high volatility in the price of cryptocurrencies has been a factor for the profits of some groups and the losses of others. Of course, ordinary people, who are greedy for high profits and accept high risks, always exist in every society.
But the general issue of cryptocurrencies cannot be left alone as history and passage of time introduce the details of their existential dimensions and it is necessary for experts in different fields to discuss and examine these tools from their specialized point of view.
In this article we will ask and answer the following questions:
- What are cryptocurrencies?
- Where does the value of these currencies come from?
- Do cryptocurrencies have lasting value?
- Do cryptocurrencies have value?
- Are cryptocurrencies a means of exchange and therefore can contain value?
- Doesn’t the use of cryptocurrencies as a means of exchange reduce the cost of exchange, which is the reason of its value?
- Can crypto and cryptocurrencies create efficient value in the future of the economy as a fundamental innovation?
- Are cryptocurrencies a Ponzi tool?
What are cryptocurrencies?
It seems that cryptocurrencies are tools in the virtual space and on the blockchain platform that have been included in the market value and have found a price.
Where does the value of these currencies come from?
First, it should be said that anything that has utility in the economy can equally stimulate the desire to pay or equate monetary value in a person’s mind and prepare him for pricing (read monetary valuation of utility). It seems that the value of these cryptocurrencies is not intrinsic and has been created due to the demand for them.
The ability to speculate and make profitable future transactions in them creates a situation for risk takers that even without any intrinsic value in these instruments, just because they can find someone greedier than themselves in the future to sell it to or to buy it.
Do cryptocurrencies have lasting value?
Does that mean they have a discounted value from in the future? If we review the factor that creates value, we can say that the factor that creates future depreciable value for stocks is the interest paid by the issuer to the holder.
This issue is also included in government treasury bonds. Today’s price is practically the discounted future value of these types of instruments in the financial market. In the case of gold, of course, there is intrinsic value. The intrinsic value of gold is based on several factors:
- First, the demand for gold for decorative products, which has a large share in the global demand for gold.
- Second, the high value of gold demand for industrial and medical uses.
- Third, the high value of gold due to the demand of central banks to keep the asset portfolio balanced.
Therefore, gold is a commodity or a tool that is subject to a high intrinsic value. Even if it does not have future interest payments such as treasury bonds or stocks.
National currencies also have value, but in today’s conditions, these currencies are all fiat money and are the so-called unbacked currencies issued by governments. So their value is due to their support by issuing governments. Governments issuing national currencies in countries support and support these payment instruments in the domestic and international financial space and therefore have value for this reason, but their value can always be changed according to the type of support and behavior of the issuing government with money.
Be changing Governments that have loose budget structures and undertake financial policies based on reckless spending have no choice but to use national money for this extravagant behavior and produce and supply it at a high level. This is where the support of each government for every number of banknotes it publishes practically decreases with the issuance of the next banknote, and therefore this unbacked money loses its value if it is not a factor to stimulate the national production of that country as much as it has been issued.
With all these explanations, another important factor for the value of an asset should be considered collective acceptance. At the same time, if a group supports an asset and this asset is acceptable to them, even though that asset does not have intrinsic value, it does not have the value of future profitable transactions, it does not have the benefit and payment of future periods, it is not supported by the governments, but still the acceptability has a collective, it will be subject to value. Now it leads to another question.
Do cryptocurrencies have value?
Cryptocurrencies do not have intrinsic value, they do not have the value of future profits from regular payments, they are not backed by governments, but they still have mass acceptance. This issue can keep them subject to value, and as long as this collective acceptance remains stable, their value remains.
But it is important to note that the amount of this collective agreement for cryptocurrencies will determine their value and of course their price. When few people (even their producers) just accept their value, their value can be determined in small prices. Whenever the number of people who believe in their value increases, the price of cryptocurrencies will grow and when the number of these people reaches the highest, the price of cryptocurrencies will also reach the highest.
Now, if any factor causes doubts about the value of cryptocurrencies and the number of people who hold them decreases, the price of cryptocurrencies will start to decrease and the number of people who believe in the value of cryptocurrencies will decrease.
They start selling their assets from cryptocurrency in the market, the supply to the market has increased, the price of cryptocurrencies will fall more. With this explanation, those who buy cryptocurrencies and have a demand for them, or the people who keep them, are the people who have a collective acceptance of cryptocurrencies, and those who sell them are people who are as much as those who buy cryptocurrencies.
They don’t believe in their acceptability, or at least they don’t at the time of sale. Therefore, it can be said that if cryptocurrencies are subject to a drop in their collective belief and acceptance, they can easily lose their value. Therefore, they have zero future discount value. have zero intrinsic value. And if they lose their collective agreement, their price will be driven to zero.
Are cryptocurrencies a means of exchange and therefore can contain value?
It can be seen that cryptocurrencies are used in some informal exchanges and even black and hidden exchanges, but this does not mean that the nature of these virtual space tools is a means of exchange.
Rather, due to the nature of value and transfer independent of central banks and of course independent of the legal identification paths that they have now and it is not clear that they will have in the future, they have been subject to a collective agreement to have value and be a means of exchange.
A significant part of currency smuggling transactions, capital transfers, black transactions such as human trafficking or human organs, weapons, drugs and other hidden goods in the current conditions in the national and international spheres takes place through cryptocurrency tools.
Whenever the acceptance value of cryptocurrencies decreases for any reason, their instrumental value also decreases in this area and if the acceptance value of cryptocurrencies moves towards zero, the value of their medium of exchange will also move towards zero.
It is important to note that countries and official international organizations that work against corruption, money laundering, and the black and hidden economy know that one of the most important means of exchange in these transactions are cryptocurrencies, and therefore, they make the highest effort to identify technical routes and control them.
This is where cryptocurrencies are threatened from this area and even if they have collective acceptance value (only for their use in hidden exchanges), this concealment is gradually becoming revealed with the intervention of central banks and governments, and therefore From this area, the future value of cryptocurrencies can tend to zero.
Doesn’t the use of cryptocurrencies as a means of exchange reduce the cost of exchange, which is the reason of its value?
Of course, the use of cryptocurrencies in exchanges due to not having many formalities and obtaining many permits, for example, in the transfer of capital in the international space, is subject to ease and thereby improving the quality of the transfer and of course the speed increases, and for this reason, it is useful and has intrinsic value.
At least the same amount or the current value of all the values created through the ease of exchanges and the reduction of exchange costs, but due to the time reduction of the agreement on their acceptability and the reduction of their positive effects in exchanges, at the same time as the entry of central banks By binding these agreed payment instruments, it seems that in this area, the future value of cryptocurrencies will tend to zero, although in the current situation, they are still included in the current value.
Can crypto and cryptocurrencies create efficient value in the future of the economy as a fundamental innovation? And if they have this feature, can they be considered valuable in the future?
The answer is that if such value of efficiency and raising productivity and reducing exchange costs can be recognized and followed in these tools, they can be valued as much as the net present value of all the values they will create in the future.
However, although in the current situation, this issue has included the facilitation of exchanges and the ease of financial transfer of exchanges, but it must be said that a large part of these exchanges or all of them are of the type of transfer of these cryptocurrencies and are not included in the official sector of the economy, and commodity exchanges and It does not cover official services.
At least, the tax system has not discovered these transactions and has not been subject to tax payment, and therefore they have not been directly included in the national income calculations (although they have indirectly shown their effect through the excess deviation in the productivity of some factors and have been included in the national income calculations), as well as the section.
The next big exchange in this area is in the hidden and black economy, which is considered a diversion of resources from the point of view of the official economy and is harmful. Therefore, even though such inventions can be considered valuable for the economy, they will fully display their benefits in the economy when they are officially and freely exploited and used in all daily transactions and exchanges.
If in the future such tools replace fiat money or are used alongside it in daily exchanges and make the exchange routes simple, fast, cheap and secure, then they can be considered as valuable as the current value of these values.
But there is still one question left. In this case, it has gained general acceptance and these tools have replaced the official money, and they can no longer be considered as crypto-currency, etc.
Another thing is that when a company has the future value of an invention, this value can be clearly identified for the company and based on its future profits and their discount, the valuation amount for these inventions can be determined and added to the company’s stock value.
But when tools like this are used in the entire economy, then although the value of productivity and benefit created cannot be ignored, but to calculate it, it is not possible to simply act as a company and calculate the value created.
Therefore, it is only possible to calculate its shadow value or its implicit effect in the economy, and because this effect is a collective effect and to some extent a public good, therefore, the willingness to pay for it cannot fully appear and determine their real price.
This is where if these innovations are subject to becoming public goods, then it is not possible to form a market for them, or the formed markets will be incomplete, and this issue can make the clarity and accuracy of determining the amount of value for them subject to computational doubt.
Are cryptocurrencies a Ponzi tool?
Ponzi instruments can create illusory assets and accumulate debt. This process happens in such a way that a person uses the creation of another debt to repay a debt, and because these debts are subject to interest payments, the amount of accumulated debt of a person becomes larger and larger and reaches the size that the useful life of a person to work and repay.
These debts are not enough. This process, if realized, can lead people to create a stream of debt for themselves by creating successive debts, which, if continued and accepted by society, will form a stream of windfall wealth and high prosperity without work.
This is where the diversion of resources has arisen in the economic system and if this method becomes a common procedure in the society, then it can be seen that working and honest effort in that society has become an anti-value and fraud and playing Ponzi type and high life and prosperity become a value through the creation of accumulated debts.
In advanced countries, Ponzi-type behavior is illegal, and if a person enters this field, he will be found guilty and imprisoned. Basically, in the economy of advanced countries, trust-building tools are defined in the economy that no one can start a Ponzi game. But in the case of cryptocurrencies, until these tools enter the official field of government production and supervision, they can become a tool for the formation of a Ponzi game.
Both from the type of their production and publication, which has made many people the owners of legendary wealth, and from the type of credit game that can be used with them, especially in times of price growth.
Therefore, as long as cryptocurrencies are not subject to the official laws of the countries in production, exchange, storage and valuation, it can be claimed that they can be tools of the Ponzi game type.