oldschripp Follow Jul 22
· 7 min read
What crypto currencies are used for Alright, let us take a step back and look at what crypto currencies are being used for.For most of us: we want to get rich.So we invest and trade crypto currencies.Fair enough.
Since adoption is growing rapidly you can also use crypto currencies for payments.
And I am not just talking about Bitcoin.There are many ways where you can spend your crypto directly, or use some sort of instant conversion scheme.For instance the Binance Visa Card offers a way to store your crypto on your card and pay in fiat.When you make a purchase, your crypto is converted to fiat instantly.
So the retailer does not even need to accept crypto as a payment for this to work.We can use crypto currencies for payments .
What is the blockchain used for Well, looking at Bitcoin the blockchain is used to secure transactions in a trustless system .That means we do not have to trust a bank or another middleman to keep our funds safe and actually execute the transactions.That also has the benefit that your funds cannot be seized (although with more and more regulations coming, expect wallets to be blacklisted).
If you look at altcoins, lets say the Ethereum blockchain, we can see that the technology is used for smart contracts .That means we can create contracts which will be executed based on a set of hard-coded rules.Again without having to trust a middleman (although you need to verify the code to make sure there are no security issues).
The evolution of the internet Oh ok.Now we are talking about the internet… Hear me out.The internet is evolving.
If you want to read more about this evolution you can start here .But we do not have to go into the details here.
It is sufficient to understand that the current iteration ob the internet, namely Web3, aims to create a version of the internet where machines, AI and other algorithms interact with one another.Up until now the web was mainly designed for humans to create and curate content.But that is changing.
Live with that!
Back to the “store of value thing”… So let us connect the dots.With the evolution of the internet we can see that the focus is shifting from humans to machines.We want machines to interact with one another.
If we apply this same shift of perspective (from humans to machines) to blockchains and crypto currencies we start to see some interesting features.
While we humans can invest and trade those currencies, they can be used as payment.But by who? Sure, humans can use them as payment.
But more importantly, so can smart contract.
Smart contracts need to be executed.And each execution is going to need some sort of payment (in crypto).
So really crypto currencies are a way for smart contracts to pay for the execution and transactions.Think about that: crypto currencies are used for payments, but mainly by smart contracts .Leave humans out of the equation.By design cryptos are not meant to be used as payment for your groceries.
They are meant to be payment on the blockchain, hence by machines and algorithms.
But smart contracts on the Bitcoin blockchain? While not entirely impossible, it is just not feasible.There is an entire ecosystem built around Bitcoin which enables smart contracts but to do so on the Bitcoin blockchain itself… well good luck with that.
I argue that bitcoin serves as a store of value, but only in the crypto space! Lets leave humans out of the equation for now, let us ignore fiat currencies.We humans pay and think in fiat.Machines, AI… they think in crypto currencies.
And crypto currencies are necessary.This way smart contracts can pay just as much as they need.No monthly subscription for staying alive on the blockchain.
No yearly hosting fees for maintaining a server just to execute the code there a few times per week.For smart contracts cryptos are a highly effective way to pay for the resources they need.
Or do we want to build machines which first have to initiate a wire transfer from your bank in order to run your code? Wait for 2 business days? Or maybe use a VISA card… sure let a machine take over your credit card.You better build some good alert system into your code!
Blockchain as a company Think about a blockchain like a company.A blockchain has to provide some good features in order to attract developers and consumers.
If the blockchain is slow it is unlikely that many developers will build applications using this blockchain.
If a blockchain provides cheap transaction fees, developers are more likely to use it.If the blockchain offers transaction fees which are way too low validators will probably not provide resources to that blockchain since they do not earn enough.
They will only earn enough if enough developers build on that chain.
So in a way a blockchain has to perform in order to be competitive.Just like a company has to perform in order to attract investors.
Just like company stocks the value of a blockchains’ native token depends on the performance of the blockchain itself.Of course we could compare this to its fiat value and we would see huge price swings.
But didn’t we say to leave fiat out of it?
Looking at the numbers Lets look at the BNB chain in fiat value.
Price of BNB in USD over 1 year As we can see, around August 2021 the USD value of BNB hovered around $650.During the recent crash the price dropped below $200 briefly in June 2022.
But here is the catch.All this time the BNB chain grew in numbers: more applications, more users etc.Just a well performing blockchain.
However, we are looking at the “human” side of it.
Crypto currencies are made for machines!
Price of BNB in BTC over 1 year Well well well… Now we look at the price in Bitcoin.Remember, Bitcoin is a store of value (for cryptos).So if the value of a blockchain increases, its price in BTC should increase as well.
The cart above shows the same timeline as the BNB/USD chart.Yet in BTC you can see that BNB has indeed been rising in value.
Store of value!
Another example: Ethereum Now Ethereum has had a rough year.Especially since the blockchain is undergoing a huge update which causes a lot of uncertainty.
Miners will no longer be able to use their hardware to mine ETH.The update itself has been postponed many times.
By the way if you own ETH you can make a pretty decent gain of 3% instantly by supporting the updated version of the Ethereum blockchain (ETH 2.0).Read my short guide here for free if you are interested.
But back to our numbers.If Ethereum blockchain was a company, we would expect its price to be under huge pressure.
You can look at the ETH/USD chart, but you will see the same crash that you can see on any other crypto currency.
Price of ETH in USD over 1 year But it is the price of ETH/BTC we are interested in.
Price of ETH in BTC over 1 year As you can see, the price crash from the top to bottom is not as severe as it is in USD.Since the Update of the blockchain is supposed to happen in the near future you can also see the price of ETH/BTC rising sharply lately.More so than in fiat.(I admit the chart looks similar to the one denoted in USD.
Yet the price swings are not as bad in relative terms)
Conclusion Bitcoin is indeed a store of value but only in the crypto space.Fiat is the money system for us humans.Crypto is the money system for machines.We have explored the reasons for this in this article.
I think if we really want to judge the value of certain blockchains we need to look at its value in BTC and not fiat.
Fiat is used by us people and therefore the price will only reflect what humans just now think about the space.In BTC you will find a true evaluation of its value.
Thank you! I hope you enjoyed this story.Leave a comment if you feel like it.Follow me if you like 🙂 Thank you for taking the time to read my story! I know time is more valuable than money.
I sincerely wish that this story added value to your life and gave a new perspective on Bitcoin and the crypto space!
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