THE CRYPTO CURRENCY FALLACY
There are only two things that give a currency value:
the medium itself has intrinsic industrial or consumer value or
there is some government forcing you at gunpoint to use that currency to buy some substantial fraction of the world's material wealth.
Case 1 Example: Gold and silver have intrinsic value because industries require them to manufacture many things that people need and want.
Case 2 Example: The dollar, which today is almost entirely a digital currency that is manufactured by twiddling numbers in bank computers, is intrinsically worthless, but we have an arrangement with OPEC where in return for "protection" (in the mob sense of the word), OPEC nations sell their oil only in dollars. We demonstrated with Iraq and Libya what happens to "protected" countries who don't follow the rules; Iraq was selling oil to Europe in Euros and Libya was establishing a pan-African currency called the "gold Dinar" in which it planned to sell its oil, thereby putting its natural wealth in its own pocket rather than ours. We ravaged both countries and assassinated both their leaders. So the dollar is actually an oil-backed currency by virtue of our having our guns trained on OPEC.
Crypto currencies meet neither criterion. They are a bunch of numbers in a bunch of computers, with nobody forcing you at gunpoint to use them for anything.
In response to my arguments, crypto fans claim that SECRECY gives crypto currencies their intrinsic value. This is circular reasoning. I could send you a secret message claiming that I've sent you a million dollars, but the secrecy of my message does not confer any value unless you already believe that my message would have value even if it weren't a secret. Secrecy can perhaps add value to a medium of exchange that already has intrinsic value for other reasons, but it cannot in and of itself confer value.
I hear and read all sorts of other arguments that compare crypto currencies to corporate stocks or other sorts of things having subjective and/or volatile values. If anything, these analogies reinforce my position: for example there are plenty of corporate stocks that are intrinsically worthless, but people currently exchange money for them because they don't realize their worthlessness yet. Stocks and other investments that do have enduring value typically have that value only because they are ultimately tied to underlying goods and services that have intrinsic industrial or consumer value.
As if all this weren't enough, there is the danger of a catastrophic takeover that is inherent in any democratic mechanism. Years ago Google became the world's dominant search engine by ranking search results according to the numbers of links referencing them. When first introduced, Google's search result rankings were indeed valuable. But malefactors immediately determined how to circumvent Google's mechanism, and today we have an entire "Search Engine Optimization" industry dedicated to perverting Google's results by creating fraudulent links. So now your Google search results have value only for those items that are not interesting enough for anyone to have bothered perverting them. Cryptos work on a majority-rule valuation method. Could some government or consortium of governments gain enough power to control the majority of wallets of a given crypto using bogus software and thereby empty your wallet overnight? Yes, Virginia, yes they could.
There is one scenario in which a cryptocurrency could achieve enduring value, and that is if it becomes (or is created as) the fiat currency of some nation. But in that case its value won’t be inherent in its crypto-ness; rather it will be propped up by whatever government is forcing people to use it, and it will maintain value only as long as such an arrangement exists, just like any non-crypto fiat currency.
If you lived through the Beanie Baby fad of the 1990s, you already understand something: the holders of Beanie Babies decided one day that Beanie Babies were merely stuffed toys, much like any other stuffed toy. The same fate awaits any asset where this sort of mass realization is possible. The holders of gold cannot force its value to zero by declaring it worthless, because some factory somewhere will always be willing to pay a price for it. The holders of dollars cannot force its value to zero by making such a declaration; the U.S. government forces its minions to value their transactions in dollars, pay taxes in dollars, and buy OPEC oil using dollars. But everyone holding Beanie Babies can indeed collectively decide that Beanie Babies are just stuffed toys.
One day something will stimulate the holders of today’s crypto currencies to realize that their wallets are full of nothing but a bunch of unenforceable numbers, and on that day the values of all cryptos will quickly trend toward their true value: zero.
Disclaimer: I am not a financial advisor, and I am not licensed to provide financial advice. Nothing in this article constitutes financial advice. This article is provided for entertainment purposes only.