Where does the value come from?

I get asked this every time I talk about STEEM and Steemit. Originally I just parroted what had been said online about fiat and gold standards, oil standards, the content and network backing the blockchain etc.

But in reality none of those explanations work for your average person. They just look at you and say “Riiiight”. The next word out of their mouths is always “But…”

You can’t sell an idea, when the people you are selling to respond with “But”. It means they are not listening to you, so much as trying to shoot you down and prove you wrong.

So let’s look at this a bit differently.

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Where does the value come from for a regular five dollar note? (in this case a NZ five dollar note. Pretty isn’t it?)

The piece of paper itself has no real intrinsic value. It does not even represent a real value. What is backing it? Gold, oil, labour? Can I demand to be paid in gold, or oil or labour in return for the note? No, of course not.

I can exchange the note for goods and services though. But to what value?

Five dollars will usually buy you a coffee in most cafes. But in other cafes it won’t, or you might get a coffee* and* a scone for your five dollars.

The value of the note is what others are willing to trade for it. Some are willing to trade a small cup of coffee, some a large cup of coffee, some a coffee and a scone. The note itself has not changed. The price of gold has not changed, nor the price and availability of oil. No-one has worked longer hours, or more efficiently. The value of the piece of paper is totally dependent on what the other party says it is.

I will give you an example.

In 2000 I was in Bolivia. I had a US$100 note in my pocket. It had NO VALUE. I couldn’t exchange it for local currency because it had a small tear in one corner. No-one would give me anything for it. It had absolutely no value.

I then spent 24 hours in Santiago airport in Chile waiting for my onward flight. I couldn’t buy food or drink because I could not exchange this note (my last one) for a reasonable rate. They would give me about $40 worth of local currency. The note had not changed, but the value of it had.

So I sat for 24 hours without eating, because I was really annoyed at being ripped off like that. One big plus was that it made the airplane food taste really good. And I finished my meal within seconds.

On my return to New Zealand I exchanged the note with no problems, getting around NZ$200 for it. So it clearly had more value here. But again, the note itself had not changed, nor had anything else except what the other party was willing to exchange for it.

Crypto currencies are exactly the same!

They don’t need to be backed by anything, because nothing else is actually backed by anything.

The value of the currency is what you are willing to exchange it for.

Consider the prison economy (work with me on this). Money is not allowed in prison (in NZ) but there was still a currency whereby inmates could buy and sell goods and services. The unit of currency was cigarettes. This market operated just the same as a regular market, the difference being instead of exchanging bits of paper, you exchanged bits of paper with tobacco rolled in them.

Smoking is now banned in prisons here. So what did the inmates do? They changed the token – to biscuits (I think it was, the last time I asked). Cigarettes were not backed by any ‘standard’ but they were still ‘legal tender’ in that environment.

In reality the value of a currency is not a simple case of supply and demand, as economists might tell you. The supply and demand does not change when you walk from one coffee shop to the next, and yet the value of the five dollar note does. There were not suddenly less US$ in circulation when I arrived home from South America, and yet my $100 note went from worthless to worth twice its face value. Simply because that was what it was worth to the other party.

So when someone asks you where the value comes from, you can tell them it comes from the same place that the value of ‘real’ money comes from. It comes from the people who are willing to trade it for goods and services.

And, when you look at it like this it explains why the crypto markets operate in the same way as other markets, with ups and downs. With some currencies being valued more than others simply because people value them more.

What do you think?

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Check out my stories here on Steemit

Running Deer

Running Deer - part 1
Running Deer - How legends are born

Charlie Rabbit

Meet Charlie Rabbit
Charlie tides up
Charlie Rabbit and Margery Mouse
Charlie Rabbit and Margery Mouse make music

Little Peppers Adventures

Runaway Rabbit and the hungry fox
Maybe and the land of purple rainbows – A Little Peppers adventure
How Pappa Pepper and Monster Truck the Pepper got their wild hogs - a Little Peppers Adeventure

Dark Angel Regiment of the Space Marines - Mission Files

First Squad Sniper Elite - Zaresith mission

Other stories

Stranded
The Lady Of The Lake

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Also don't forget to check out my Dad's blog

Who else can tell you stories about impersonating an officer, stealing a military aircraft to go on a booze run, or steal military aircraft and go on an unsanctioned bombing run - and that's all before he turned 18!

Check out @len.george and find out what other madness he got up to!

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Head over to: https://www.steemithelp.net/. It's the best place to get a handle on what the platform is all about.

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