The Fidelity of Cryptocurrency

Josh Kaufman starts his book, The Personal MBA, by discussing value creation. He says that a successful venture needs to create value. In my last blog, I implied that cryptocurrencies do not have real value. But studying value creation has highlighted to me why I might be wrong. Value is about what people want and need, and cryptocurrencies links to both of these.

First, what do people need? According to Abraham Maslow, humans have a hierarchy of needs: existence à relations à growth. People first need to feel they exist, secondly, they need to feel that they are linked to something or a part of something greater than themselves and finally they want to be greater themselves - that is, they want to grow. So, anything that captures these three can have value.

Whilst Maslow’s pyramid provides a good reference point for understanding core human drives, it is perhaps not the best in understanding what people want. A better distinction here is that drawn by Kevin Maney where he discusses the necessary trade-off between fidelity and convenience. Fidelity is captured by attribute of status, aesthetic appeal, or high quality – that which has emotional impact. On the other hand, convenience is captured by attributes like reliability, flexibility, or speed – that which is efficient. So, does cryptocurrency have value? My contention, it seems, was only that cryptocurrency did not solve problems of convenience or of existence. The real value of cryptocurrency is in fidelity.

Cryptocurrencies spur an emotional response: they create communities that people feel they are part of, they give rise to the adrenaline of being part of a new project, and ultimately, they let people gamble on stories. And giving people a story they can be active participants of is of no small value. And these stories are more than just being the next bitcoin or the next Ethereum, the realm of NFTs opens up a monetary story against any brand, because there is something that is indivisible, something that is tangible a thing with a unique and verifiable claim giving rise to a strong sense of attatchment – a strong sense of fidelity.

Moreover, it seems that cryptocurrencies perfectly capture value in Maslow’s higher prongs: both growth and relatedness. People are witnessing the emergence of the digital age, and therefore digital money makes intuitive sense. So, participating in the cryptocurrency game makes people feel part of undeniable digital growth. And relatedness because it is often when people we can relate to - people we see as similar to ourselves because of twitter groups and shared discords - buy a coin that we will also buy that coin.

So, is cryptocurrency just a craze? Is the value of cryptocurrency not real? No. The value of cryptocurrency just lies in a different domain, not in the domain of convenience but in the domain of fidelity. The same domain occupied by designer clothing brands and luxury pieces of art work - the arbitrary domain that only makes sense to those in the game. Whilst cryptocurrency isn’t more reliable or more efficient than our incumbent financial system, the coins that have been created generate real emotional impact. This is most vividly captured by Bitcoin, and the ardent group of Bitcoin fanatics – you need only hear Michael Saylor speak to see the faith that the new technology induces.

However, fidelic value may be insufficient. Because for any project to succeed it must abide by an iron clad law of nature – the law of activation energy. In chemistry, activation energy refers to the necessary input for a reaction to be complete. This refers not only to breaking old bonds and creating some new ones, but in creating lasting bonds. Cryptocurrency may have forward velocity, but will the fidelity last? Cryptocurrency has been in constant forward motion, despite great obstacles: the hacking of Mount Gox, China’s cryptocurrency ban, the scandal of FTX - none have managed to stop its forward velocity. Despite this, a tipping point has not yet been reached, the eggs have not yet been scrambled irreversibly, cryptocurrency remains in its reaction phase and loyalty to the cause may at any point cease. But success requires courage, and whilst people continue to pour energy into cryptocurrency, it continues to grow in value.