Beliefs create Currencies

If you have only read the headline, this might sound as a complete craze to you. But stay with me for a moment, and I will put everything in places.

Where does the Value come from?

Seldom do we realize this, but majority of the things around us have value because we believe they do. Think about this for a second.

Majority of the things around us have value simply because we believe they do.

The most powerful (and enjoyable!) brands in the world are valued in billions because people believe in them. LEGO, Disney, Google, Apple, or Amazon are so powerful because we believe in their ideas, vision, or lifestyle they showcase. We attach ourselves to them because they resemble something beyond the product or service they sell, they resemble something that we value. No more, no less.

Value of the Currency

The exact same holds for the currencies. USD, GBP, or EUR has value and are thus so powerful because we collectively believe in them as a legal tender. Let me give you an example for this.

Currencies have value because we collectively believe in them.

Imagine a room full of people. If all of the people would suddenly close their eyes and say Let's imagine this room is a spaceship, and it will fly us to Mars, nothing will happen. Since the room is neither a spaceship, nor it will ever fly.

But if all of the people in the room would suddenly close their eyes and say Let this thing have value, and they all value it - they have abruptly got a price for it. Such a collective agreement will thus allow them to exchange things of economic value among themselves, and more importantly - the external world can interact with them as well.

This, in fact, is very much interrelated with how nations were born. If you have enough people with the same identity and genesis, you have got a nation. Likewise, if you have enough people with the same beliefs and values, you have got a currency.

If you've enough people with the same beliefs & values, you've got a currency.

Speaking about the regular currencies, or fiat money (such as previously mentioned USD, GBP, or EUR), the most important thing to emphasize is that they are so powerful because people collectively believe that in case something goes wrong, the governments that issue these currencies will sort things out (we all know how many times the central authority (=government/Central Bank) has failed to do so, but this is not the topic of this article).

The New Paradigm

Yet, the times are changing, and hence our beliefs as well. The shift of trust and beliefs can very well be illustrated by the emergence and spread of cryptocurrencies (especially Bitcoin and Ethereum), or blockchain technology as such.

This new paradigm, one can say, illustrates the aim for new type of democracy. The decentralized democracy. Where value lies within the network, and everyone's collective effort. As the network grows, so does the underlying value, as well as its strength.