“Bitcoin and other digital currencies have been touted as alternatives to fiat, but what gives ANY type of currency value?”
Store of value means holding value without losing that value (depreciating) Silver, Gold, Platinum and other precious metals are assets that hold their value perpetually, however something like milk, eggs, etc. are not good examples because they would deteriorate and decay. Such things as Treasury Bonds or (T-bonds), are very good examples of stores of value because they also generate income and their principal balance has a legal contract.
Many countries issued minted coins of precious metals to represent currency . Minted coins held their values well because they were made of precious metals and for this reason were used all over the world as a representative of value. It became, to say the least, “cumbersome” to carry heavy coins to use for trade so governments started issuing “paper currency” backed up in value by these precious metals.
The monetary system that fixes their currency value on the value of Gold is known as “Gold Standard”. “A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.” This WAS for the most part, the system the world used up until the 1930’s when England went off the system and the USA followed in 1933 and the remnants were totally abandoned in 1973 in the USA.
Enter the “Fiat” system.
“The gold standard was completely replaced by fiat money, a term to describe currency that is used because of a government’s order, or fiat, that the currency must be accepted as a means of payment. In the U.S., for instance, the dollar is fiat money, and for Nigeria, it is the naira.“
The reason given for a switch to “Fiat” currency was that governments were afraid of a “Run” on precious metals supplies.
If anyone gives you the argument that Bitcoin is not worth anything because it is not “backed” with anything of value, do you know now that by that judgement, neither is “Fiat’ currency?
It is HIGHLY likely now that you have or still do use electronic currency as a payment method. (Think Credit cards, Bank debit cards, etc.) which are not backed by anything but faith that this will be accepted as currency by governments, retailers and individuals. Today most governments have adopted “Fiat” currency systems.
Traits of Money:
For a currency to be successful it must meet certain qualifications related to scarcity, divisibility, utility, transportability, durability, and counterfeitability.
“To assess Bitcoin’s value as a currency, we’ll compare it against fiat currencies in each of the above categories.” https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp (Here you can read points that are in addition to the question as to “Store of Value” such as scarcity, divisibility, utility, transportability, durability, and counterfeitability.)
Bitcoin holds up well in each category but is weakest in the Store of Value. With the adoption of Bitcoin that is happening world-wide this may very well soon become a strong point. However MASS adoption, this writer, sees as KEY for Bitcoin and indeed other Crypto-currencies to be successful.
Investopia at https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.as says: …Our total estimate for global value of mediums of exchange and stores of value thus comes to 72.1 trillion U.S. dollars. If Bitcoin were to achieve 15 percent of this valuation, its market capitalization in today’s money would be 10.8 trillion U.S. dollars. With all 21 million bitcoin in circulation, that would put the price of 1 Bitcoin at $514,000. THIS of course remains to be seen.