The Fiat Value: Cryptocurrency, Utilization and Speculation (Briggsy's Unfiltered Thoughts)

Question: The Chicken or the Egg; which came first?

Answer: The Farmer came first.

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The above conundrum is not really intended to have an answer because it's meant to serve as an example, unless of course one looks beyond the conundrum to a greater one. In the case of the chicken and the egg conundrum, you simply toss reality into the mix and remind yourself that chickens didn't "poof" into existence, but inorganically evolved over time through selective breeding to become the modern day chicken. Without the farmer, neither the chicken or it's egg would exist.

So how does that relate to the Fiat value of crypto?

Well therein lies the problem. In an ideal situation, you would have an internal peg that everyone used that had no bearings outside of the digital world. And no, tether can go disappear in the garbage fire that it will eventually ignite, thank you very much. Ideally, Bitcoin would be that anchor for the rest of cryptocurrencies, a reserve currency if you will, except then how do you value Bitcoin? It's a chicken and egg conundrum that doesn't have such an easy "big-picture" answer.

As long as we are holding, trading, mining and interacting with cryptocurrencies with the intent of eventually "cashing out" into fiat currency, we are going to keep valuing the crypto market in US Dollars, or Yuan, or Row, or CAD, or Euro etc.

On the surface that's not a bad thing, because we want to know the fiat valuation of our crypto holdings. We want to know how much a Bitcoin costs so we can average our purchases of crypto over time to see if we have lost or gained money. We also want to see just how big the crypto market capitalization is compared to past bubbles, like the Dot Com bubble for example.

This of course automatically makes cryptocurrency a capitol gain or loss when you convert back to fiat. Or, in the case of those living under the totalitarian thumb of the US Government - only the flying spaghetti monster knows what cryptos are.

The other problem is one of volatility. Well, that's not actually a problem per say if you are making money from it. People who spend fiat money they can't lose (or don't even own in the case of credit) are much more likely to panic at the sign of a loss.

But what did they lose? If you own an Ether today and your wallet is secure, you will still own an Ether tomorrow if you don't sell it. Right?

What is Ethereum valued against? Does its' current utility justify a thousand+ US Dollars per Ether? Does it cost miners that much to produce an Ether? Does this cost factor in startup projects or companies that are building Decentralized Apps on Ethereum and need to pay employees?

These kind of questions are good to have an answer to, especially if someone can't afford to lose the value of their investment. If you suddenly see Ether dropping to 500 dollars per coin, does that make you sell? If so, why? Why didn't you sell at 1000 dollars then? Why wouldn't you just wait for the price to go back up before bailing out?

This highlights why most traders and investors in a speculative market lose money, and why some even lose their shirts. They don't actually know what the value of something should be based on. This is exacerbated with crypto because a lot of cryptos don't even have any utility outside of the theoretical use-case they are designed for. Does anyone really think we are going to exist in a world where crypto replaces centralized Fiat money, while still being valued in fiat money? What is something valued in then, if not in US Dollars?

That is the first and last mistake of many investors in cryptocurrency. Because they don't understand what they have bought or what it's (potential) utility is worth; they are depending on everyone else to tell them what it's worth in fiat. But, almost everyone else is in the same boat, looking to each other for confirmation that something is worth something.

This is why speculative markets are a high risk venture, and why they are so volatile. Without a clear use-case for a cryptocurrency, the value should be zero, yet greedy investors buy into pump and dumps on a weekly basis hoping to cash out before someone else does. You could argue that a lot of bitConnect investors were doing just that. They knew it was a ponzi and pyramid scheme, but they were hoping they could cash out before it collapsed.

This is why I am so bullish on Steem in real life, and try to get other people on board. It is one of the few cryptocurrencies that has a clear utility and is already being used for its' intended purpose on a real-world platform. I look at the value of Steem at $4-5 US Dollars and laugh internally when I see something like NEO at $100+ US Dollars. That's not to say NEO is worthless, nor any other blockchain that could eventually serve as a backbone for the next iteration of the internet. But it's a gamble to say which protocol blockchain will win. Will it be Ethereum? NEO? UBIQ? Steem? EOS? Cardano? YourFavoriteCoin?

On that note, I believe that to really get an idea of what any cryptocurrency is actually worth at this moment, you need to measure (in some way) just how much it is being used for it's intended purpose. Something like NEO is housing a few ICO's, but overall I feel it is overpriced based on it's projected use as compared to Ethereum - and Ethereum is not even being used for its' intended purpose of being a protocol blockchain for Decentralized Apps (at least not very much yet outside of a few games like cryptokittles and cryptocountries).

Then there is Bitcoin and other clones that are intended to be used as a currency in the digital world. The next big thing for Bitcoin and Litecoin will be payment channels on the lightning network, where you could theoretically ride around in a self driving car that is owned by someone else (which you hailed with your smartphone), and as the car drives you to your destination, a payment channel streams satoshis to the owner of the car (while they are at work lol), and when you reach your destination the payment channel pays the car owner and gives you back whatever bitcoin you didn't spend on the trip.

I talked about this the other day with someone at work, and they reminded me that this kind of thing already exists at self-serve gas stations, where you insert your credit or debit card and open up a payment channel first before filling up your car. When you are done pumping your gas the amount owing is paid to the gas station and you get back the remainder into your account (if any).

That left me wondering just how much convenience people are willing to trade for better security? How will something like Bitcoin sell itself against the centralized fiat systems that appear similar on the surface?

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In that light, I stick with my general theme of this post. Utilization ultimately determines the base value of a cryptocurrency, on top of the costs associated with maintaining the ecosystem of that network.

I believe that when Steem reaches $100 US Dollars per coin and holds at that or higher, Steem will actually be worth that much because of it's utility and costs in the real world. Same for when Steem reaches $1000 per. The real world use of something also dictates that it does not get sucked down with the rest of the cryptomarket during a selloff. We have seen this already in the past month when Bitcoin tanked from $20,000 to as low as $5,800, yet Steem just shrugged it off and quickly climbed back up to what it needs to be worth for those that use it.

But for many crypto's, the value is in their future potential utilization, and that is what speculation is partly about -the other part being the belief that someone else out there will pay more than you did, and you can make a profit in the future by selling to them- aka the greater fool principle. Mix those two parts together and this creates just enough confusion that most people can't tell what something is really worth compared to what the crowd speculates it is worth. It's only after the fact that they look at a recent crash on a chart that they understand something was overvalued.

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One could argue that Bitcoin is worth nothing, but they would be ignorant.

Bitcoin costs at least $1000 US Dollars to produce a coin, possibly even $2000 at this point, which means that Mining companies after they take their profit margins into account need to sell their coins for probably double or triple that, because they also need to keep buying newer mining equipment to keep profitable.

What do you think would happen if the Price of Bitcoin dropped to $2000 dollars? I can tell you for certain that Minors would not be selling for $2000 per coin, and the new supply would dry up fast.

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But despite just some of the variables at work, I Hope this illustrates just how insane the cryptomarket looks to traditional investors on the outside. For many of them, they just see a bunch of poor church mice scurrying about buying invisible cheese from the rats, only to later find out they were holding onto and trading bags of sh** all along.

The thing is, they aren't entirely wrong. A vast majority of Cryptocurrencies and ICO Tokens are flat-out worthless, and yet people Hodl them, even getting ignorant with others on social media when "their precious" is criticized. Maybe some of them will realize great fortunes for Hodl'ing something that later becomes very valuable; it has happened before. Despite that, you can make a lot of money from these sh**coins if you aren't greedy and are willing to play it safe. Learning some Technical analysis of charts helps a lot. Buying low and selling high in the short term can be profitable if you aren't a sucker for hype trains, and you aren't greedy.

But I've rambled on enough today. If you made it this far, thank you for reading.

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Tip Jars:

Dogecoin DDizpbLrYzFNEZtEVvUXo8kKBKu3K7yLry
Bitcoin 32p67yperYxM8dEFXESL3oeBcEn4qP32cQ
Ethereum 0x54c0387Fd48Dc8D48D30069be2e18756b8d203A5
ETC 0x067511c327Bc68b73726F4410fEAdb47ed396425
Ubiq 0x3EDb86c57f7f495aE0963855Cc37BA64B40C7685

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As always; good luck, good wealth and good health to everyone on Steemit. Stay positive towards others and help the community grow. Thank you for reading and sharing. Comments are always welcome.