The intrinsic value of an asset refers to its actual value, which is arrived by evaluating the underlying perception that the said asset is worth when both intangible and tangible factors are considered. While intrinsic value is easily calculated for precious assets such as gold, including cryptocurrencies, and — by extension — ICOs, into the same fold is cumbersome.

This is because the life cycle of tokens thus far has often been characterized by bullish runs and steady rallies followed almost certainly by unclear performances only months after. This, however, cannot be said of ICOs, which primarily refers to the process of generating these tokens, and, as such, is just a means to an end.

Nonetheless, it does not imply that cryptocurrencies do not have intrinsic value, they do! A look at worth in the cryptocurrency arena, however, should evaluate the value of the tokens as it is the only rational way to determine how such affects ICOs. The turbulent rise and falls of the price of the major tokens such as Bitcoin have led many to question how crypto coins that aren’t even tangible or visible can have value. This is the reason why it is essential to define the factors that determine such value in crypto.

Utility and scarcity

According to the fundamentals of economics, a commodity has value if it is scarce and has utility. Scarcity here just means that the said commodity has a finite supply. The utility of crypto, on the other hand, points to its ability to become a more efficient commodity compared to the next best alternative. For instance, the tokens that seek to offer better means of storing value such as Bitcoin, are attractive because they are decentralized, built on open-source programs, are trivially divisible, and not susceptible to price influence that results from corruption.

Medium of exchange

A currency can only store value if it’s stable. Stability in this instance refers to the efficient facilitation of transactions. Such stability calls for ubiquity, which relates to the extensive usage and mass adoption, and flexibility that comes with these two. Ubiquity rises when more people accept the token in question as a preferred form of payment.

However, it is important to note at this point that tokens have evolved and a lot many churned out by the many ICOs the financial world is witnessing, offer utility only with regards to access of their respective networks. This means that they are just relevant to individuals that seek the services that the said networks provide.

These two factors point to a growth in demand for cryptocurrencies since they offer a lot more than paper money can. Tokens that act as mediums of exchange, for instance, provide rapid, almost anonymous transfer at near-nil costs. These are attractive features; they most certainly will push for production of more of such coins that create even further convenience, a situation that will facilitate even more ICOs in the future, albeit with better structures.

This report was composed by the Markets Research Team at MaxData.io, a blockchain startup coming out with a crowdsale this upcoming May. The company has developed a blockchain platform connecting consumers and service providers directly, allowing for a more efficient marketing process that will streamline and reduce costs of transactions.