Everyone who has been advocating cryptocurrencies heard millions of times that the whole theme is nonsense, scam, bubble, hype, you name it. Many people are simply bewildered that some “numbers on computers” can become more and more valuable. As a result, there is a popular notion that cryptocurrencies don’t have intrinsic value, they are not “backed” by anything, and therefore their valuation is nothing but a bubble that will eventually burst.
However there is a fundamental flaw in this view. It is based on an assumption that in order to be sound, cryptocurrencies need to be backed by a tangible asset. This is not correct. Traditional currencies like the US dollar or GB pound are not backed by assets, they are backed by governments, i.e. by a social structure. Modern money is an institution, it is a set of rules established and maintained by society (like the army, the police or taxation), and this is how cryptocurrencies should be considered too.
Fiat money is a state institution, it derives its value from a government that enforces a currency as a legal tender. Cryptocurrencies are civil institutions, they derive their value from a mutually agreed consensus of voluntarily cooperating individuals. Fiat is backed by governments, cryptos are backed by independent communities. This is the fundamental difference. Fiat is the police, crypto is neighborhood watch. Fiat is tax — crypto is donation. Fiat is the army — crypto is militia.
Therefore when someone says that crypto has no intrinsic value, they do not really mean that bitcoin is not backed by a commodity like gold, unlike US dollar, because the latter is not backed by a commodity either. What they imply, either willingly or unwillingly, is that the power of communities does not hold the legitimacy to enforce its own currency (hence it is scam), or that the bonds uniting these communities are too weak for a sustainable future (hence it is a bubble).
What the critics are missing is that civil institutions do not pop up out of nowhere without solid reasons. For instance, people unite looking for justice when the police are corrupt and ineffective. Militia are formed when a regular army is not capable of performing its duties, and so on.
The rise of bitcoin would not have been possible without the financial crisis of 2008, which highlighted how poorly the global financial system is designed. The continuing success of cryptocurrencies is fuelled by the inability of the establishment to reform the conventional monetary system to meet the demands of the 21st century.
So, the next time you hear that bitcoin is a bubble, and that the entire crypto world is a scam, ask one question: What is the alternative? The debt-based, usurious, speculative, rent-seeking, ineffective, outdated financial system, incapable of delivering peace and prosperity, despite the enormous technological progress humanity has achieved? In fact, the system is so corrupt that it even sees progress as a risk, not an opportunity. For instance, automation is seen as a threat, as a source of unemployment and poverty, not as an opportunity, as a tool to make a huge societal advance from low-wage drudgery to fulfilling, well-rewarded creativity.
Communities behind cryptocurrencies fill the vacuum. They do what the mainstream financial system is incapable of delivering — they create a new financial paradigm, which addresses the real issues we all face today.
Using our analogy, the crypto community is the “financial militia” fighting the challenges of the 21st century, whilst the “regular financial army” is passive and ineffective. You can ridicule the “militiamen” for their appearance, inexperience and sometimes naivety, but you cannot deny that it is they who fight the war, and that the “generals” — bankers and public officials — don’t even try to seize the initiative. They do nothing. This is where we are. The conventional financial system has been in crisis since 2008 and no radical effective solutions to fix it have been proposed yet.
Cryptocurrencies, like them or not, are the only viable alternative and they are here to stay.