Why does the dollar keep its value?

If you're only a little bit familiar with the monetary system, you'll know that fiat currency is not sustainable in the long run. The reality is that it's just a bunch of debt getting funneled around and more debt is created every day. As long as fiat currency exists, the debt will exist. If all the debt would be repaid, there wouldn't be a single dollar in circulation.

This is probably why you're here on Steemit as well. You've lost your trust in your local currency and moved to cryptocurrencies. If you're a good investor, or just lucky, you could have made good profit on your savings by putting them in Bitcoin, Ether, or many other currencies. And you still can!

However, you can also lose a lot of money if you're not careful. Over the past few years there have been multiple Bitcoin "crashes". I remember my secondary school economics teacher arrogantly telling me that, after we saw Bitcoin's first big correction in november 2013, "it had become clear that Bitcoin wasn't a good investment anymore." Joke's on him: according to coinmarketcap.com, today Bitcoin is worth almost $3,400 USD. That's almost triple of the all time high at the time.

The state creates artificial value based on force

The most important difference between fiat currency and cryptocurrencies is that the value of fiat is determined by force, while crypto gets it value through voluntary exchange instead of governmental coercion.

Let's take the Euro as an example. The Euro was created by the European Central Bank, after which most member states decided to issue it in their respective countries. In other words, various states forced their people to adopt a currency. It doesn't matter whether you wanted it or not, you had to use it.

But you can choose to simply not use the currency, right?

Well, no. The thing is that the state takes money from its citizens through taxation. Therefore, you are forced to pay a cut of every transaction you do to the government in Euros. This is how the state creates demand for the Euro. It is an illegitimate demand for Euros. If you prosper, the state demands that you do your business in their currency so that they can tax you. This is the main reason fiat currencies keep their value: the government forces people to use it, driving up demand, and thus its value.

Fiat gets its value. Crypto deserves it.

The difference with cryptocurrencies is that their value is solely determined by supply and demand. Of course, there are exceptions, but this is the main trend. This means that crypto is traded through voluntary exchange. The supply and demand of cryptocurrencies is genuine and not likely to be the subject of manipulation through force.

Therefore, it is unreasonable to say that cryptocurrencies are in a bubble. The fact that the price for crypto is so high at the moment, is not because people are forced to use it. This is the price that people agree on. Although the crypto market will probably see various corrections in the future, this is a healthy occurrence. It certainly doesn't mean the end of the crypto world when the price drops: it is merely a consensus of the people who exercise the demand for it.

As long as this principle stays, cryptocurrencies will be more sustainable than fiat currencies in the long run, regardless of their volatility. Crypto is the future, so be sure to be one of its first adopters!

--> Click here if you want me to make a cool banner for YOUR profile!

--> Previous post: What comes first? Open borders vs. ending the welfare state

--> Thumbnail source