As I learn about the metaverse, cryptocurrency, and NFTs a question which keep arising in the back of my mind is what has value? What is value? Why does something have a particular value and another thing different value?
I think the answer here is that value on one hand is grounded int the subjective experience of the individual. Pizza has value to me; I like to eat it. If you have a pizza and it has absolutely no value to you at all you might just give it to me. On the other hand there’s a good chance it does have value to you, in which case you might want to keep it, or we might have to work out a deal.
That’s where currency comes in. Let’s say I like pizza and you don’t. But there’s other foods that you like. In a vacuum since the pizza has no value to you you might just give it to me but if you trade it for currency you’ll be able to trade that currency for something you value. That’s the heart of currency, currency has no value in and of itself without a relationship with other things that have value.
That gets us into cryptocurrency. Crypto is interesting because it’s very difficult to trade crypto for goods and services that you value but you can trade it in for other forms of currency such as dollars that can be traded for stuff you value.
So we’ve got this chain reaction. I value pizza, because I value piizza I’m willing to give you some currency to get your pizza. Because you value other things, let’s say popsicles, you value the currency that I give you for your pizza. Now let’s say I’ve got some cryptocurrency like Bitcoin. I can’t very easily trade Bitcoin for pizza but I can trade Bitcoin for USD, and then trade that USD for pizza. So the value of Bitcoin is doubly separated from the pizza that I actually subjectively value. So the cryptocurrency is a layer on top of the conventional currency and the conventional currency is a layer on top of the actual goods and services that we actually value.
And then you’ve got market forces. With market forces you have all of these feedback loops where things that don’t have bottom layer value but do have higher layer value end up gaining or losing value in chaotic patterns almost like the weather. And because they are so far removed from any bottom layer pizza that actually tastes good, they “real” value is essentially impossible to peg.