The Real Value of Cryptocurrency

11 Pages Posted: 16 Feb 2022 Last revised: 22 Feb 2022

See all articles by Jan Damsgaard

Jan Damsgaard

Department of Digitalization, Copenhagen Business School

Date Written: February 14, 2022

Abstract

Controversy surrounding whether cryptocurrency is a bubble and whether the price of bitcoin should be zero instead of $40.000 USD ignores a foundational problem: cryptocurrency has been assessed based on the wrong assumptions. This article outlines a method for providing a more suitable and reasonable assessment of the real value of cryptocurrency. The main argument against cryptocurrency has been that there is nothing behind it. Backing a traditional currency is a national bank, a state and the right of taxation. When cryptocurrency is measured these traditional measures it falls short and the value calculation comes to zero. However, a cryptocurrency is not a traditional currency and should not be measured as such. Instead, it is the associated blockchain that provides cryptocurrency its real value and not its properties as a currency. A blockchain is a digital platform. A piece of software that supports the demand of different companies for a common independent ledger. The valuation of a cryptocurrency must, therefore, be based on the value of its blockchain. The right question to ask is “How valuable is the blockchain itself?” From that point of view, it is clear that a cryptocurrency must be priced more like the price of a digital platform company rather than as a regular currency. To demonstrate the usefulness of this approach the value of Bitcoin, Ethereum, Ripple, Solana, Filecoin, and Cardano is assessed, and it is suggested that several of these cryptocurrencies—when understood and priced as digital platforms—are priced low in relation to their business potential and application area.

Keywords: Cryptocurrency, Bitcoin, Blockchain, Web3, Ethereum, Solana, Ripple, Filecoin, Cardano

JEL Classification: E40, E41, E42, E50, O33

Suggested Citation

Damsgaard, Jan, The Real Value of Cryptocurrency (February 14, 2022). Available at SSRN: https://ssrn.com/abstract=4034312 or http://dx.doi.org/10.2139/ssrn.4034312

Jan Damsgaard (Contact Author)

Department of Digitalization, Copenhagen Business School ( email )

60 Howitzvej
Denmark

HOME PAGE: http://www.cbs.dk/en/staff/jddigi

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