Greentext

After years of lurking and staying quiet on the subject, I'll finally bite because it's a valid question and the typical responses are usually poor quality. There will be simplifications, omissions, and errors, but hopefully you'll find it useful nonetheless.

I'll speak specifically to bitcoin, and ignore other crypto currencies where things get increasingly complex.

As you suggest, it has no intrinsic value just as the dollar doesn't, in the sense it's not backed by some physical asset.

Where does the value come from then? Value can be derived from your ability to transact with a currency. There can also be speculation around future value. Both are certainly true of Bitcoin, but it's an evolving ecosystem. In the early days it was a novel idea and a very small number of people transacted with it and derived value that way. Since there's a finite number of BTC value is driven up as more people want to hold it (regardless of whether that's for transaction or speculation). During the silk road period (and to this day), the thought of a decentralised (and somewhat anonymous, let's disregard the complexity and just say that people thought it was) currency would be great for buying and selling illegal goods and services. These transactions increased the value. Since then, there's been a lot more mainstream interest in BTC, largely driving speculation but also transactability. Again, value increases under these conditions.

A lot of criticism of BTC is that it's pure speculation and there's little to no transactability. My thoughts on this is the majority of commenters are simply those that derive no benefit from transacting in a cryptocurrency. The USD, Euros, GBP are all amazingly transactable currencies, so why reach for crypto? The fact is, there are a lot of real world transactions happening with BTC and crypto in general. Several South American countries find themselves with a currency which is an incredibly poor store of value and BTC insulates it's citizens from this. The remittances market is a huge cluster fuck of middlemen and fees, bitcoin is often a better deal.

All this is still changing though. Substantial amounts of crypto transactions are now facilitated by financial entities with improving KYC by firms like Chainalysis. Regulation is forming rapidly, recognising BTC like many other currencies or assets, ensuring that the majority is exchanged and transacted at regulated entities. Still volumes go up. There are more and more companies who will transact directly in crypto.

So I ask the question, if the trajectory of bitcoin is that more and more people are not just holding it, but using it... Why wouldn't it be more valuable, why wouldn't you have expectations of it like any young currency?

Re your point about trading in dollars. There's plenty of states, entities and people who don't use the dollar and they get on just fine. At a national level the US has a vested interest in ensuring a country does trade in dollars, or conversely making sure they can't.

Now the USD is backed by the USA and that's powerful, so how did BTC get started? It's mostly the protocol. Miners find coins and get paid tx fees in exchange for securing the network against a sybil attack. We transact with BTC, or store it. Institutions are formed or pivot to support the ecosystem, the more people using it there more value there is in supporting it.

BTC is 16 years old now and it keeps having value because it's valuable! Perhaps the greatest question is does the value outstrip the speculation? I won't try to answer that, but we've seen a lot of crypto bubbles burst because of this... yet a few remain?

I'll stop here because I could keep expanding and refining, but I have a dinner to go to. Hope this helped in your understanding!

I don’t understand how bitcoin has value

The first major use case were donations to wikileaks, because the existing financial system shut them out. Recently, the Americans shut Russia out of the financial system and stole their money. Escaping financial repression is valuable (even if you don't agree that people should be able to escape).

drugs. the answer is drugs.