RON AND DON

Cryptocurrency: How do we determine what is valuable?

Jan 16, 2018, 1:36 PM | Updated: 4:21 pm

bitcoin, cryptocurrency...

In this Dec. 21, 2017 file photo, a woman walks past the Bitcoin ATM in Hong Kong. The growth of bitcoin is fueling speculation about the environmental impact of the energy needed to power the cryptocurrency, stemming from the process of "mining," which is central to its existence. (AP Photo/Kin Cheung, File)

(AP Photo/Kin Cheung, File)

A 910 carat diamond was recently found in a southern African kingdom.

According to the New York Times, it weighs more than a baseball and will make the mining company tens of millions of dollars. But why?

RELATED: Cryptocurrency and its pitfalls

This is the question that governments around the world are wrestling with. Not with diamonds, but with digital currencies.

Why is a diamond worth a lot and a hunk of sandstone worth virtually nothing? Why is gold protected at Fort Knox, and aluminum flattened into cheap rolls to cover our left over pizza?

This simple answer is because we all decide that one thing has more intrinsic value than the other. Diamonds and gold are rare. It takes a tremendous amount of effort to unearth them, and therefore, we choose those materials as a place to store value. But what happens when millions of people around the world rapidly decide to store their value online in a virtual substance that is virtually mined by computers everywhere?

Well, it depends. If you happen to be a savvy early adopter, you could make a fortune. If you’re South Korea, you might feel threatened with the loss of control and try and put this genie back in the bottle. Is that even possible? Some who deal with cryptocurrency believe that governments would have to destroy the entire internet itself to stop the internet of money. You can’t kill one without killing the other.

Even then, the designers of Bitcoin left a loop hole. You can just write down your credentials on a piece of paper, and you theoretically can still make a transaction of value.

RELATED: Thoughts on cryptocurrency

Is there a reason, besides our social contract with each other, why you’ll serve me lunch in exchange for the special green paper in my wallet, but not the yellow sticky note? What exactly is giving that green paper its value? The US dollar has not been tied to gold since 1971.

The internet completely transformed music, books, banking, communication, and virtually every aspect of modern life. My hunch is that in 10 years, we’ll look back and realize that it transformed our relationship to money, too.

Bitcoin is dead. Long live bitcoin.

You can hear “What are we talking about here?” everyday at 4:45 p.m. on 97.3 FM.

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