What Makes Crypto-Currencies Valuable?

Even for those who strive to learn as much as possible about them, crypto-currencies like Bitcoin can seem bewildering. All such currencies rely for their existence and security on some fairly involved and difficult mathematical concepts and techniques, so coming to grips with them on a technical level can be a long and grueling process. On the other hand, knowledge of that kind is not actually necessary to make use of these currencies. Still, even those who are not interested in low-level details often have some important questions of their own.

One of the most common of these is the question as to where, exactly, those currencies derive their value from. It seems almost impossible, after all, that a currency could be created out of thin air, only to eventually become so valuable that even Wall Street investment banks take notice. In fact, there is a two-fold answer to questions of this kind, and it is not a difficult one to understand.

One half of the answer is that such currencies derive their value from the fact that people want to use them. This might sound like a trivial, or even flip, reply to an earnest question, but it is fact a significant one. After all, for many decades now, even the currencies of such financial titans as the United States are backed by no more than the eagerness and need of people to use them, since precious metals as backings have largely been abandoned. For crypto-currencies, then, that same factor is equally important.

The other half of the equation is that creating, and therefore obtaining, new currency is very difficult. Each of the distributed currency systems in widespread use today was designed around a process whereby vast quantities of intense computational power are needed to produce more. That means that, for a given level of demand, there is never any shortcut to be taken by those who would rather not pay others real-world money for their own stores of the currency.

Instead, only putting enough computing power to the task can produce the new money that would allow these people to avoid assigning a value in terms of physical-world currency to the virtual ones. These two halves of the answer, then, are all that it takes to give digital currencies value.