[New Wave] Do Cryptocurrencies Really Have No Intrinsic Value?

Seungjoo Kim, Head of the Department of Cyber Defense, Korea University.

Those who hold negative opinions about cryptocurrencies argue that "cryptocurrencies have no intrinsic value because they can be produced endlessly by a program." Is that really the case?

Currency characteristics are determined by the issuing entity and the group that recognizes it as a tool of value. First, let's discuss the issuing entity. Due to the Vietnam War and a significant expansion of the U.S. trade deficit, along with the oil shock, the United States began printing dollars at will. Eventually, in August 1971, President Nixon abandoned the gold convertibility system. During the 2008 global financial crisis, the U.S. central bank implemented quantitative easing policies by printing a massive amount of dollars to purchase bad bonds, thereby increasing the money supply. Similar policies were repeated in March-April 2020 when the economy was locked down due to COVID-19. As such, existing fiat currencies can be created anytime by the central bank with the authority to issue currency.

In the case of cryptocurrencies, money can also be generated endlessly if the program is modified. However, because blockchain technology is used, it is impossible for governments or institutions to make such decisions unilaterally; the consent of all users of the cryptocurrency is required. Moreover, Bitcoin has a fixed total issuance of 21 million units.

Secondly, let's discuss the value of currency. As seen with the U.S. dollar, the value and stability of currency depend on how many people share trust in that currency. This trust, as Yuval Harari mentioned in 'Sapiens,' is a product of a very complex relationship combining politics, society, and economics. As of 2021, approximately 106 million people worldwide hold Bitcoin, and the daily number of Bitcoin users is known to be around 400,000. Furthermore, with the recent emergence of non-fungible tokens (NFTs), called killer applications in the blockchain field, the number of users is increasing even more rapidly.

In terms of value stability, 'stable coins' that minimize price volatility already exist. For example, the representative stable coin 'Tether (USDT)' requires one dollar to be deposited as collateral in a bank account for issuing one Tether.

Additionally, cryptocurrencies can provide supplementary functions that existing fiat currencies cannot. Ethereum, known as a second-generation cryptocurrency, allows various computer programs (smart contracts) to be registered on the blockchain in addition to transaction records. This design enables support for various additional services such as DApps, DAOs, DeFi, and NFTs over time. It is similar to how Google and Apple provide spaces like Google Play Store and Apple App Store to freely upload apps, gradually expanding the functionalities of smartphones.

Thus, disparaging cryptocurrencies simply as having no intrinsic value stems from a very superficial understanding of cryptocurrencies and blockchain. If we recognize and consider Apple's App Store a remarkable invention worthy of investment, cryptocurrencies should also be evaluated and treated similarly. It will be interesting to see how far cryptocurrencies evolve beyond the simple function of currency.

Seungjoo Kim, Head of the Department of Cyber Defense, Korea University