What Gives Currency Value

With the forking of Steem, this is a very important concept to consider.

Few took the time to consider what it is that gives a currency, fiat or otherwise, value. There are a lot of ideologies out there that support a particular belief system, yet when viewed over time, we see the fallacy behind them. In fact, the United States Federal Reserve (and other central banks) find themselves behind the proverbial 8 ball in this this most recent crisis because they followed a monetary policy for decades that is proving untrue.

The emergence of cryptocurrency has caused some people to consider this concept. However, with all the pumps and dumps, scams, regulatory uncertainty, and overall bad actors, it is hard to determine what gives anything value when it comes to currency.

As we delve into this question, it becomes clear that there is really no magic. This is true no matter what we look at. For all the beliefs and theories out there, it really comes down to some simple concepts. It is a point that could radically affect the Hive and Steem tokens as we proceed forward.

Why do people prefer the USD over the Venezuelan Bolivar? Actually, with this latest crisis, why do they prefer the USD over all other currencies?

Obviously, the Federal Reserve is guilty of pursuing misguided strategies. At the same time, the U.S. Government is a total mess. We are going to see some bills out of the coronavirus situation that send the national debt exploding further. Lastly, the United States economy is coming to a complete stop, just like the rest of the world.

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Thus, why is everyone flocking to the USD?

The answer is fairly simple. At the present moment, and since World War 2 actually, the USD had one thing going for it: confidence. Yes it is the world's reserve currency so many transactions require the USD. However, that would not be the case, for such an extended period, if there was not the confidence in the currency.

This gets magnified in a time of crisis like we are presently seeing. The masses, most notably in Europe, are not forced into the USD but that is what is happening. We are seeing a massive shift to the USD around the world as everyone questions all else that is out there.

Which brings up the second factor in currency value. The USD has a tremendous "network effect". As more people want to get their hands on it, the value increases around the world. We see how strong the dollar is right now against most other currencies. It is also helping to slap down the price of gold and oil since those are priced in dollars.

Here we see a couple important factors to consider with the fork of Steem. With two blockhains, Hive and Steem, each having their own token, it is going to be important that both factors are applied. The hope would be that both chains can achieve this but time will tell on that one.

Having the confidence of the user is vital for a currency. Obviously, the situation in Venezuela over the last year shows what happens when confidence plummets. The Bolivar collapsed against other currencies as the population dumped it. This is what a confidence crisis looks like.

In the world of cryptocurrency, confidence is shown by the actions of the projects that are on a particular blockchain. As things become more decentralized, the activities of individuals becomes even more paramount. Those who are the most visible have the ability to influence the sentiment. Major projects that are viewed as moving forward help foster this environment.

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One of the drawbacks to Steem over the past few years is the fact that Steemit Inc did not inspire a great deal of confidence in the community. The company was plagued with a lot of promises yet low on delivery. Since it was the flagship entity, this had a negative impact on the sentiment towards the token.

This obstacle is removed. For Hive, it is now a matter of the other known entities to step up. Development is crucial as well as the community spreading the word.

As for Steem, the characteristics are the same. What will be done there to instill confidence in the user base? Will the main players take the necessary steps to create an environment of confidence? Will the community embrace what is taking place.

The world of cryptocurrency is still rather small. It is a net positive that users are going to have more options. The question is what is truly taking place on these chains that will attract more individuals. This is where the network effect enters the picture. Those blockchains that are able to get users will see their tokens have value. Both Hive and Steem have this opportunity.

Will either, or both, be able to accomplish this?

We will have to see how it all unfolds.

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Posted via Steemleo