Why are cryptocurrencies worth anything, anyway?

It is not immediately clear what do cryptocurrencies bring to the table when it comes to value, why are they worth any monetary value? If earn some dollars, euros, or pounds by working my ass off, it makes sense to invest some of it in assets like stocks, bonds, high interest savings account, or gold. But where do cryptocurrencies come in the picture? Are they worth anything, anyway?

I try to make the case that cryptocurrencies do have value, and in fact they represent a combination of several classic assets that people usually invest in and use.

1- Transaction Currencies:

What gives the dollar, Euro, or Yuan… actual value? it is the simple fact that the dollar for example is backed by the government of USA. A group of people and institutions have agreed to use the dollar as their transaction medium. If (or when) enough people agree to transact in Bitcoin, Stellar, or Algorand…these cryptocurrencies would have an inherent value. And in fact, cryptocurrencies have several advantages over classic Fiat currencies.

• Faster, cheaper, and borderless transactions.
• POS currencies earn interest inherently if staked.
• Decentralized, no central authority to dictate the features of cryptocurrencies.

2- Shares in financial institutions:

What makes banks, brokerage firms, and other classic financial institutions… companies worth investing in? They custody clients money, provide savings interest, and allow trading of stocks, bonds, options etc… in the crypto world, smart contract platforms allow similar functions at the protocol level: money is safeguarded using your own software wallet, DeFi protocols allow lending, borrowing, trading, providing liquidity etc… in a decentralized fashion. Unlike classic financial institutions, smart contracts and DeFi protocols run independently 24/7, and have no daily or weekly limits on the amount or fashion of the operations that a user is attempting.

3- Infrastructure of videogame economies:

If I play Roblox, Fortnite, or similar popular videogames, and I want to buy in game items or access some exclusive experience, then I need to buy specific in game currencies with a credit or debit card in order to buy my items. Cryptocurrencies allow for a more seamless, integrated experience by using NFTs to represent in game items, characters, identities etc… which allows true ownership of in game assets. So if game A becomes boring, selling in game items and trading its currency to be more active in game B is a possible and easy option. Current gaming ecosystems do not allow this type of freedom at the moment.

4- Miscellaneous functions:

• Accumulating and using reward points from several grocery stores, air travel companies, clothing stores ….is a very fragmented experience. With cryptocurrencies, non useful rewards can be traded to useful ones or to actual currencies, allowing consolidation of the random rewards.
• Governance and voting rights: owning voting shares in normal companies and participating in the votes is a clumsy experience. Cryptocurrencies allow for a more user friendly, onchain voting experience.

5- Final thoughts:

Cryptocurrencies, smart contracts, DeFi, and NFT technologies still need work, lot of work especially in regards to security and usability to non tech savvy users. But it is clear that they provide important advantages over legacy financial systems, and in my opinion, anyone who categorically denies any advantages of cryptocurrency technology is trying to keep the status quo because of existing vested interests and personal stakes in the legacy financial system.