Written by Analia Cervini, Vice President of Communications at Bitso
How can cryptocurrencies be used in the same way as cash? What gives it value?
These questions confuse the crypto inquisitive. It can be hard for most people to get around the lines of code that gain and lose value, are traded online and used to buy anything from pizza to sports cards. As the World Cup approaches, it offers us a timely metaphor that sheds light on the question of where cryptocurrency gets its value from. Football fans will understand:
Each year, when it’s time for the World Cup, fans from all over the world buy poster books filled with pictures of their favorite players and spend weeks trading those posters to organize the perfect collection. This year Jane bought the World Cup poster album and started making deals. She has many iterations that she knows others will appreciate, so she exchanges them with other fans. Since some of the stickers in her collection are so highly regarded, I traded one for two or even three from another less sought-after collection. In fact, her friend Jeremy offered to pay for her lunch for some of what he missed, and her friend Chad offered to buy her poster of the American star for $5.
There are hundreds of millions of people in the world trading stickers, so much so that Jeremy was willing to trade lunch for one, and Jane is convinced that they have value beyond what she paid. However, Jen cannot go to the coffee shop and buy coffee with these stickers because the coffee shop wants cash for coffee. It seems silly to her because the cafeteria will have something that millions of people around the world use as currency.
Jane can explain to the cafeteria that posters do not suffer from inflation, that their value is constant around the world, and that they are not subject to the decisions of governments or central banks. But the argument is futile. The cafeteria knows that it must absorb its costs and pay the money to its suppliers. Meanwhile, Jen continues to participate in the huge and growing label trading community around the world.
stickers for stickers. There are billions of stickers circulating in the world and there are millions of people giving value to them, but organizations only want stickers if their suppliers can be paid with them as well.
Faced with the looming gulf between those who value labels and those who offer value for money, certain companies could emerge to link worlds together, understanding the value that labels have to Jane and the value that money represents to the cafeteria. Thus, one company is offering to give Brooke stickers for their money and give Jen cash for their stickers, based on their every need. Now, these companies can evolve and go much further in bridging these two mediums of exchange. They can make it possible for Jen to pay the cafeteria with stickers while the cafeteria receives the money.
In this metaphor, stickers are cryptocurrency. People from all over the world start buying them for one reason or another – first because they liked the concept itself, and then later because they heard about it from their friends. Much like the limited number of posters featuring the best players, when people learn that the supply of cryptocurrencies like Bitcoin is finite, they become interested in its scarcity — willing to pay more to own some. Soon, people don’t just buy it because it’s interesting or because their friends showed it to them; Others start making the same purchases because cryptocurrencies are valuable in and of themselves.
Of course, with World Cup stickers there will come a time when everyone completes their group and no one wants to replace them anymore. On the other hand, cryptocurrency does not follow sports seasons – its displayed value remains constant. There is nothing stopping people from being interested in this new technology to send money across borders, hedge against inflation, or deal with new levels of transparency. Without an expiration date, companies appear to help businesses like cafeterias convert cryptocurrency into traditional money and vice versa – today, these companies are called exchanges.
Living with cryptocurrencies in this way has become a reality in some countries around the world; In Mexico, encryption has become a key to sending money to and from the United States; In Argentina, many people pay with cryptocurrency by scanning QR codes; And all over the world, some of the most famous brands have started accepting cryptocurrencies as payment. The posters may only last for one season, but the cryptocurrency is here to stay.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.
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