How Cryptocurrency gets its value?
“Asking for a friend”
Last Saturday morning, as I was sitting down to drink my morning green juice, I received a text message from a my good friend Don. In that message, Don had sent me a link to a Bloomberg article with a video insinuating that the cryptocurrency is losing value due to a hack at an exchange.
I was curious how they were making that connection, and why. When a bank, money exchange, school, business, or whatever gets hacked, and millions of traditional currency are stolen; does that affect the value of that currency? I have never heard of that ever being reported.
I decided to do some digging on how Cryptocurrency gets its value.
1) It seems it gets its value by being scarce. (There is a limited amount created)
2) Then difficulty level. (How much energy, and time it takes to create?)
3) The price of bitcoin. (Yes bitcoin is a cryptocurrency, but other currencies seem to react to it)
4) It gains value by the public’s perceived usefulness of it.
5) How widely used. (How many places can you use it?)
6) Investors. (Investors give it value by buying large amounts of bitcoins, just like stocks on a stock market)
7) The media (Like the article I read, that talked about how it will lose value due to the hack)
8) Again, people’s perceived value of the currency when they look at all, or just one of these reasons.
There may be more to the reason a cryptocurrency has value, but this is how I understood it after my research.
So again, how does this hack of an exchange really have an affect on the cryptocurrency stolen, or any other cryptocurrency for that matter?
The only thing hacked was a storefront, and it was due to bad security; nothing else. You shouldn’t store your currency at an exchange firstly, and second; the exchange should have been storing 99% of the currency in an offline cold wallet. As well as using better security over all.
So after some research, I figured out that the only reason NEM would lose value from the theft would be due to the media reporting that it should lose value, and the public believing them.
Author: Steven Johnson