Cryptocurrencies Are Flawed But They Have Value


As the price of bitcoin surges financial analysts, speculators and others have debated whether the cryptocurrency has any true value. After all, trading it is difficult and it has extremely low liquidity. You can’t simply trade bitcoin for dollars. There are several factors that are discouraging to those interested in seeing cryptocurrency gain legitimacy. Most have to do with technology, not markets. Despite all this, Leonid Bershidsky writes that cryptocurrency’s value might not be tangible but it is worth something.

First, the flaws. The main problem is bitcoin’s lack of scale. As the cryptocurrency gains users, the blocks used to verify and create more currency simply cannot keep up with demand. This results in painfully slow and increasingly costly transactions. The transactions are so slow that it is difficult to determine the currency’s trading value, which then slows down trades. Coinbase, one of bitcoin’s main exchanges has had difficulty keeping up with demand and bitcoin holders have complained about the site’s erratic service. Bershidsky notes that other cryptocurrencies might be better suited for scalability than bitcoin, so it is likely that this issue will not slow the adoption or demand of cryptocurrencies in general.

There is another problem, though. Bitcoin wallets and exchanges are not secure holding places. It is estimated that “the risk of losing bitcoin is higher than for traditional money kept in the bank.” Cryptocurrency exchange Youbit had to file for bankruptcy after hackers made off with 17 percent of its assets.

At the time Bershidsky wrote his article the market capitalization of cryptocurrencies was over the $630 billion mark. Still, traditional traders aren’t rushing to the currency. The main reason for that is the currency’s fundamental value is unknown. Here is where Bershidsky makes a startling obvious but overlooked conclusion. The value of cryptocurrency resides not in the currency itself but in the freedom the currency provides.

When bitcoin was first invented, it promised its users that it was a currency free from regulations and users could be kept anonymous. Bitcoin and other cryptocurrencies are not subject to state-imposed sanctions or restrictions. It can be traded across borders. Bershidsky argues that cryptocurrency’s greatest value lies in the freedom it provides those who own it. He believes the currency has value in areas with oppressive regimes. And for those living under those conditions, volatility and slow transactions are worth the price.