Understanding this very principle is the foundation to building value.
People talk about Crypto as the new money. We will pay with crypto and get paid with crypto and it will replace fiat. Well... maybe. I'll get to that in a minute. But first, you have to understand something. Crypto is not value, nor is it money. It is a commodity. What is a commodity? Any object on the planet that can be exchanged FOR value and whose exchange rate is influenced by supply and demand. Even shit is a commodity. It can be exchanged for value and the more it is needed by someone, the more exchange value they will give you for it. Get too much of it without anyone who wants to exchange value for it and well... it ain't worth shit.
So how do you determine the worth of a commodity? Two key points: 1) How much supply there is of it. 2) How much demand there is for it. Adding to the supply will always reduce it's exchange rate and adding to the demand will always increase it's exchange rate. People want to see BTC at $100k. In order for that to happen it has to be so in demand that people are willing to spend $100k on it. Some of BTC's exchange rate is obviously inherent. It obviously has some demand or the exchange rate would bottom out to nothing. However, there are people that understand the title more than others. Several times so far, groups of people have driven the market into a frenzy and convinced people that BTC, along with other things, was worth greater and greater exchange rates, not because the commodity in question had a higher demand, but because they understood the commodity for what it is... a vehicle to transfer value. Knowing your commodity, whether it be crypto, an NFT or whatever else is invented in the future, and having an understanding of it's supply and demand, will help ensure you get the best exchange rate, and more importantly, help you to understand how to influence it.
Which leads me to explaining why I said maybe. Everybody understands the first level of marketing: Price - Cost = Profit. This is the individual POV of economics and it's how one covers their expenses. Very few know, or pay attention to, the second level of economics, but I'll tell you now, every corporation in the world pays very close attention and hopes you don't: Exports - Imports = Community Profits. Think for a second... how many things can you think of that your community exports for an exchange of value? How many things are imported into your community that you give an exchange of value for? Every import means value leaving your community and a decrease in community value as a whole. The solution is to increase exports.
Think of every integer of crypto as a person in a city. There is a collective worth to that pool of crypto. Now, if I give you $1.00 for an integer of crypto and later I give it back to you for $2.00, guess what? I have reduced the worth of that crypto pool by $1.00. Do that enough and the cypto pool will naturally become worth less and less. This is what is going on with every crypto every created, BECAUSE, value is not created, it is only transferred.
So, if that's how you reduce the value of a commodity, how do you increase it's worth? By making someone want something else. I know you all are probably saying what?! You see, I have this thing... and I want 5 units of crypto for this thing I have, but my customer doesn't have any. So guess what? They have to go BUY 5 units of this crypto that I want and bring it to me in exchange for this thing I have. I then take the 5 units of crypto that I was given and go put it up for sale again! I've just increased the worth of the pool by whatever the customer paid for the 5 units of crypto. Understand?
I hope you liked this explaination of how value works in economics and how it relates to crypto. Please like, comment and/or follow if you found the post useful. Tomorrow, I hope to go over NFTs and how they can be used to transform the way we do business around the world.
