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In October 2008, Satoshi Nakamoto published a paper describing the Bitcoin digital currency. It was titled "Bitcoin: A Peer-to-Peer Electronic Cash System."
In January 2009, Nakamoto (an unknown programmer or a group of them who are estimated to own up to 1 million coins, worth over $2 billion) released the first Bitcoin software that launched the network and the first units of the Bitcoin cryptocurrency, called bitcoins.
Nakamoto created a website with the domain name Bitcoin.org and continued to collaborate with other developers on the Bitcoin software until mid-2010. Around this time, he handed over control of the source code repository and network alert key to Gavin Andresen, transferred several related domains to various prominent members of the Bitcoin community, and stopped his involvement in the project.
The inventor left a text message in the first mined block that reads, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." The text refers to a headline in the Times published on Jan. 3, 2009.
Since 2009, the price of Bitcoin has exploded and turned many people into millionaires and multimillionaires.
We suggested two other cryptocurrencies since March that have gone parabolic.
The prospect of quick riches is now attracting many into cryptocurrencies, which gives me the opportunity, along with my partners, to explore the intrinsic value of these various coins.
What Gives Cryptocurrencies Value
To truly understand this concept, it's important to go over all the different aspects that investors ascribe to the cryptocurrency payment system.
1. Limited Supply: This is the same argument made by gold and silver bulls, and it is true, to an extent. Like precious metals, the fact that there isn't an infinite amount (or the ability to create more than 21 million bitcoins) is part of the reason it has value.
But let's not forget that there are over 700 cryptocurrencies, digital coins, and altcoins in existence today and there will be over 1,000 by the end of the year, so this argument will not hold in the test of time.
Gold and silver, however, cannot be created by man like developers springing up new coins.
If you and I hold the only two remote controlled pens in the world, this doesn't guarantee their price will rise in time. A limited amount has its advantages, but it is certainly not the main reason why Bitcoin is going parabolic.
2. It's Outside the Banking System: This is another important attribute of these currencies, which offer all the benefits associated with this freedom: lower fees, no third parties, no need for clearing houses, minimal delays, purely borderless transactions, and in the bottom line, liberty. It's essentially a competing currency system, which begs the question of when governments will step in.
Cryptocurrencies are able to freely be exchanged among individuals solely due to the fact that many government agencies throughout the world, for good or bad, control, monitor, and regulate the grid systems, electricity systems, the Internet, the companies that provide telecommunication services, satellites, and much more. In the big picture, this total lack of oversight that some in the cryptocurrency community cheer for, may be naïve thinking on their part.
3. It's Technologically Advanced: Do you remember the first wave of computers? They are like antiques compared to today's supercomputers, and so if the value of cryptocurrencies is in their technological advantages, why are so many of them worthless?
In the same way as today's cryptocurrencies are far more advanced than PayPal was, tomorrow's will be more advanced than the current ones.
This raises the question of sustainability: are cryptocurrencies scalable, possessing long-term advantages? How much would a tape recorder sell for today? Obviously nothing, because there are far more advanced musical solutions.
4. Anonymity: Many ascribe the value of the cryptocurrencies to their privacy. This is definitely an important benefit. People want privacy, but on the flip side, those barriers interfere with police work, for example.
The number of terrorist attacks prevented by the fact that agencies like the Mossad, MI-6, and others are able to trace currency wires and cash transactions using marked bills, has saved thousands of lives, and maybe even millions of lives.
What, then, are the intrinsic values of Bitcoin, Ethereum, Dash, and other successful and popular coins?
The answer is whatever the free market believes their value is.
Cryptocurrencies have a utility as a cheap and efficient payment system that is relatively anonymous, outside of government reach, doesn't require middlemen, and is global.
But it's us, as a community, who place a price tag on that, and many are placing that tag for the wrong reasons—a get-rich-quick mentality.
To many, like those with low technological skills, Bitcoin is worthless, while to others, it's practically a religion—there's even a "Bitcoin Jesus." In the great African continent, a Picasso painting is useless, but for a rich collector, it is worth millions. Value comes from use—how can something increase my quality of life?
When you own a bitcoin, you truly only own one thing—1/21 millionth of a payment system that is used by others.
Lior Gantz, an editor of Wealth Research Group, has built and runs numerous successful businesses and has traveled to over 30 countries in the past decade in pursuit of thrills and opportunities, gaining valuable knowledge and experience. He is an advocate of meticulous risk management, balanced asset allocation and proper position sizing. As a deep-value investor, Gantz loves researching businesses that are off the radar and completely unknown to most financial publications.
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