The Medieval Times

The student news site of Cabell Midland High School

The student news site of Cabell Midland High School

The Medieval Times

The student news site of Cabell Midland High School

The Medieval Times

Does Crypto Have Any Real Value?

Does+Crypto+Have+Any+Real+Value%3F

In an ever-expanding digital era, new modes of technology are becoming increasingly accessible to a broader range of consumers, revolutionizing our current way of life. Amidst this widespread transformation, even modern currency is subject to significant changes. Can currency that exists solely in cyberspace be confined by conventional economic principles? In other words, if this “cryptocurrency” has any real value, what’s to stop these impalpable tokens from dominating international commerce? 

From a very early age, you were probably indoctrinated with the basics of economy. Trade is based on exchange. “Goods” are bartered by agreement. Currency is the most common medium of exchange. Currency is regulated by the government and therefore types of economies are characterized by a government’s relative involvement in them (or lack thereof); etcetera.  

Additionally, you’ve probably also been told that currency is only valuable because “people say it is.”  

In reality, a currency’s monetary value is based on supply and demand; essentially, the more that people want something, the more that investment is worth. But without delving too deep into the philosophy of human “want” and necessity, or other infinite paradoxes, we can simply assert this lone fact: money is by nature a universal language and we as humans by design are inclined to acquire it. 

Those who devote their life to the pursuit of capital continue to look for new modes of investment. With the creation of cryptocurrency, digital investments are becoming increasingly prominent. However, as the circulation of cryptocurrency expands (while it still is relatively limited) its sudden popularity begins to challenge the basic premise of traditional economic practices. 

Governments themselves have become wary of cryptocurrency due to its subversive tendencies and incapacity to be restrained. Although crypto exists on a “chain,” it’s proven difficult to be bound.  

While novice startups are now required to procure a “BitLicense” to conduct legal transactions, businesses have learned to exploit existing legal loopholes to undermine these limitations. For example, many cryptocurrency companies circumvent security laws by classifying their currency as a “utility token” opposed to a “security token.”  

“Security tokens” in cryptocurrency are comparable to “traditional financial instruments,” representing “stake” or equity in a company. 

However, utility tokens differ in the sense that they do not represent equity in a company and are further restricted in the way they can be used. Cryptocurrencies classified as “utility tokens” have a limited range of use outside the access of “specific services or functionalities” within a “blockchain-based ecosystem.” 

Additionally, cryptocurrency is capable of transcending “political borders,” as anyone with an internet connection can readily acquire it.  

While crypto is virtually accessible to “everyone,” it may not be the easiest to get in to for a beginner. To the unversed, crypto may appear foreign, explained away simply as a “magic internet thing.” Well, let the phrase “unalterable blockchain” scare you no longer. Let’s break down the science of crypto. 

Crypto is founded on a “blockchain,” which in its simplest form is represented by a “chain” or running list of connected transactions (exchanges of currency) in sequential order (blocks). Each block occupies roughly one megabyte (MB) of dataspace and comprises about 2000 transactions.  

These transactions signify a real-world investor purchasing crypto, and they must be verified to authorize funds.  

These transactions are completed when validated or “proofed” by “nodes” (more on that later). Once a transaction is verified and completed, the user is issued funds and the successful transaction is recorded and stored in the block. After a given number of transactions, new blocks are added to the chain, generated by the previous block’s “hash value.”  

Hence, a block chain is “unalterable,” meaning its data cannot be manipulated. The hash value, produced by a unique algorithm (uncapable of being reverse engineered), changes from one block to the next, relying on the previous block’s existing hash value for confirmation. This network of hash values effectively establishes a connection between each block that solidifies the security and integrity of the network.  

The Motley Fool

If that wasn’t enough jargon for you, rest easy—it’s about to get more complex.  

There exists a multitude of ways that crypto “currency” can be earned, but the most common form (and simultaneously the most intensive) is “mining.” 

No, crypto does not exist underground—I don’t advise you go West in search of it. And while crypto may exceed gold in cost conversion, it arguably does not exceed gold in ROI (return on investment, or profit). 

Therefore, it can be said definitively that while digital currency is still technically currency and is in fact based on real economic principles, not all these principles apply to crypto. Even so, I can still use a real-world analogy in effort to make you understand.  

Crypto miners are like the bankers of the digital world (“guarantors”; “essential players): they verify monetary transactions and profit in doing so.  

Here’s where things get interesting: imagine if bankers had to solve a puzzle to verify a transaction. Even though in real life this process may seem convoluted, these mathematical puzzles (“cryptographics”) are another element of the blockchain that keeps the network secure. 

Cryptographics are “solved” with the use of “nodes,” which are complex computer systems able to send and receive data across a network connection. Nodes are programmed to solve cryptographs through trial-and-error, “guessing” millions of possible combinations until they discover solutions; in essence, crypto mining is simply “guesswork with a monetary incentive.” 

This process (nodes solving cryptographs) is known as “proof of work” (PoW). PoW was conceived to prevent cyber-attacks “from a single entity or group” and excels at “providing security and preventing fraud.” For example: “If a node where [sic] to try to add fraudulent transactions to a block, because of the nature of the mathematical puzzle, the other nodes won’t verify this ‘fraudulent block’ as a valid one.” 

Once a transaction is proofed and verified, the user is issued funds and miners earn a “crypto reward” for validating the purchase (hence, the “mining” process). Mining effectively balances give-and-take and increases the currency’s circulation.  

While this is only one of the ways cryptocurrency can be earned, elements of crypto mining are centric to other modes of investment. 

 “Crypto Mining Process”  

An almost excessive amount of computing power. (Getty Images)

The process of “staking” is fundamentally similar to mining.  

Staking allows you to allocate your own crypto funds to assist in running the blockchain. Dedicating your currency to aid in the PoW process will provide you with “net” crypto (or overall gain), much like earning interest on a savings deposit.  

In addition to these methods, crypto can also be utilized through conversion (one cryptocurrency for another), lending and giveaways in conjunction with traditional modes of investment (buying and selling). 

Even though the utility of crypto features many real-world parallels, the public remains cautious of its capabilities. As a result of continual market fluctuation, the value of most currencies, especially crypto, can be considered superficial. 

At its core, human “want” is a difficult metric to measure, and it’s ever possible that the value we hold currency to (especially crypto) could become solvent at any given time. 

Fidelity Investment cites crypto as “highly volatile,” capable of becoming “illiquid at any time” and targeted for investors with “high risk tolerance.”  

Fidelity Investment also institutes the following warning directed at investors: “Crypto may also be more susceptible to market manipulation than securities. Crypto is not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Investors in crypto do not benefit from the same regulatory protections applicable to registered securities.” 

So, while crypto may yield a high reward probability, it also entails a large degree of risk.  

Despite the implication of risk, there still exists well over 23,000 active cryptocurrencies on the market. Cryptocurrencies such as Bitcoin, Ethereum, XRP, and even “Dogecoin” (which ranks number eight on USA Today’s “Top 10 Cryptocurrencies of 2024”) are accepted by Tesla, Paypal, Microsoft, Starbucks and various other companies. There’s practically no sign that crypto is slowing down anytime soon. Intangible crypto does appear to have some tangible value. 

Essentially, crypto could still be “worth it” for experienced investors with a diligent mining operation, but for a young high-school student (like me and you) with limited resources, investing in crypto would likely do more harm than good. 

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