What creates the value of Bitcoin and other cryptocurrencies?

With technlogies like the Oculus Rif or even things like Uber or Snapchat we can understand what is the purpose of it and why Facebook thinks it will bring profit. But a considerably more interesting situation is with cryptocurrencies. Just this march Bitcoin almost doubled its value and it continued to rise to an all time high of 2500+ USD.

One of the legendary principles of Buffet is “to invest into companies that can be run by idiots, since one day they will be run by an idiot.” This principle isn’t really critique of management, but describes a company with such a clear market position and such easy way to produce its product that it essentially works without interventions. This allows you to guess the material consumption, the needed production capacity etc.

Technological companies and technologies in general are different. Often they are dependent on the personality of the founder. Just look at Commodoro and Jack Tramiel or even Apple and Steve Jobs – Apple already once almost went bankrupt when Jobs was fired in the eighties. It is obvious that technological companies are often successful based on who is in the lead.

The evaluation of technological companies is specially hard when they are still investing and have a low or no profit. That doesn’t mean the company has 0 value, it just has things like patents, it’s customers etc. This creates a very complex model that creates the estimated value of the company. For instance – like when Facebook bought Oculus Rift for 2 billion dollars before the real product was created and before all the copyright issues were solved.
But when considering that the estimated value of Facebook is around 400 billion USD, that is in total less then 1 percent.

What exactly is the value of Bitcoin and other cryptocurrencies and why did it rise so quickly in the recent past? There are many answers to this question and often they circle around “Asian markets”, but that alone doesn't explain the rise. Why should the value of Bitcoin rise that much? Why do people want it so much? What is its value? The problem is that Bitcoin is one of those technologies that you can have explained multiple times and you will still not understand it.”

Partially this is because that nobody explains the very core of Bitcoin – blockchain – to uneducated audiences very well. For people who already know what blockchains are about, the simple videos on-line don’t really explain anything. And if you go into more details, the uneducated crowds will just get lost in the details.

Paradoxically, the very core of blockchain technology isn't really about money, but about a process of a secure distributed entry verification, but that’s not really something that will gather “civilian” crowds.
But Bitcoin is only one of the applications of this technology. Another interesting paradox is that people think Bitcoin is super-anonymous, but blockchains are inherently transparent. The anonymity of Bitcoin comes in the fact that you don’t know who owns which account, but the transactions are fully traceable – so it’s pseudo-anonymous, but truly anonymous.

I personally see two things that create the value of Bitcoin and other cryptocurrencies:

1. The amount of people who are interested in a currency not controlled by the government and still view it as anonymous
2. The amount of people who speculate about the amount of first kind of people and that their amount will continue rise and thus the value of bitcoin will rise as well.

But the real value of Bitcoin is in its bona fide element – the fact that you can exchange it for something else. If Bitcoin exchanges very become outlawed, Bitcoin will not be freely exchangeable, then his value will come close to nothing. It would be an equivalent of a monetary reform, where new currency replaces the old and the old one is just canceled. And the same for all other cryptocurrencies.

Let’s all hope this scenario never comes to fruition.