When you are trying to convince someone to enter the world of cryptocurrencies, you will inevitably be asked the following…
How can a digital code –blockchain – that doesn’t exist in the physical world have intrinsic value?
And that’s a perfectly valid question to ask.
Fortunately, you came to the right place to properly construct a convincing answer. An answer that will not only provide a satisfying answer to that question, but will make the person understand what the future of money – cryptocurrency – is all about.
As you can see from the title, your frame of reference starts with a rare noble metal – gold.
In fact, gold is so rare that it ranks at the very bottom of elements in the Earth’s crust – 72nd.
For comparison, the rarest element is osmium at 78th, silver is 65th, and copper ranks as 25th on the abundance rating.
You see, when something is rare, it intrinsically gains value because the demand far exceeds the supply.
The only way the price of gold would drastically plummet is if we were to find an asteroid abundant with gold, more so than ever existed in the Earth’s crust, and if we had cost-effective means to mine such asteroid and transport the gold to Earth.
Gold’s rarity is further exacerbated by:
- Difficulty in locating it.
- Difficulty in mining it.
- Difficulty in processing it.
These difficulties compound the cost of acquiring gold.
On top of that, gold has other properties that amplify its intrinsic value:
- It doesn’t degrade/corrode over time like a common metal.
- It is shiny so can be used to forge jewelry in order to signal social status.
- It can be used in electronics as a non-corrosive conductor.
These properties made the gold the go-to currency for governments, empires, and kingdoms all throughout history.
“Only on the Internet”
Now that you understand why gold is so universally cherished in human cultures, you are halfway there to understand the intrinsic value of Bitcoin, as the dominant cryptocurrency.
First, let us address the “problem” of cryptocurrencies existing only on the internet because this is tightly linked to the intrinsic value question.
This is a silly concern for the following reason.
Internet is the new infrastructure of the entire world. It is not going to go anywhere, except to expand even further, just like electricity networks have expanded into every corner of the world.
And speaking of electricity, thanks to hydro-dams, solar panels, and wind turbines dispersed across the world, there is no possibility of a global collapse of the internet. This can only happen locally or regionally, and only temporarily.
In the worst case scenario, like a meteor strike or a solar flare, every aspect of modern civilization would collapse completely, so it wouldn’t matter in the slightest what kind of currency we use anyway!
Therefore, keep in mind that we are all immersed into this new infrastructure of the internet, which will only grow. Arguments that focus on the exclusive nature of cryptocurrencies are extremely feeble and irrelevant.
Is Bitcoin the Gold of the Internet?
Ask yourself the following question – What kind of value can thrive in the internet era?
Unwieldy gold that triggers metal detectors and can’t be easily transported, or a native digital money that has key properties of that noble metal but can be instantly traded with on the entire planet?
Bitcoin is strikingly similar to gold in that it has:
Rarity/Limit à only a set number of Bitcoins can ever exist until the end of time. This is even better than gold because there will be no danger of asteroid appearing and plummeting the cost of Bitcoin.
Difficulty in acquiring à both gold and Bitcoin are progressively more difficult to gain. In the case of gold we already mentioned why, but when it comes to Bitcoin, you need more computing power to solve more complex math problems to add new blocks to the chain.
With that being said, Bitcoin has a huge psychological hurdle to overcome. Gold is a time-tested metric of wealth, and people are instinctively skittish when it comes to things they can’t physically grasp.
This is why the trustworthiness of gold still surpasses Bitcoin, but it will be only a matter of time before more and more people see how a decentralized, digital money can make their lives much easier and convenient in the era of the internet.