Dr. Eswar Prasad

So it has become what it was never meant to be, which is a store of value.

But basically a cryptocurrency is one that is issued not by the government or a central bank, but by a private issuer or basically created by a computer algorithm and where all the transactions occur on these public ledgers called blockchain.

That's a very important question, Dan.

Now you've run a company and of course your company had stock and the price of that stock was based on what investors thought the future earnings of that company would be.

And of course there might be periods when they think the earnings prospect of the company are going to be better than the future or worse.

So there might be some sentiments that drive the price of a company's stock as well.

With Bitcoin, there is essentially no valuation model other than what you just mentioned, which is the role of scarcity.

Now, it is hard coded into the Bitcoin algorithm that there can be only 21 million Bitcoins.

They're created on a very specific schedule, and we know that the creation of Bitcoins will end somewhere around 2040.

About 20 million of those 21 million have already been created.

And Bitcoin adherents seem to believe that just the fact that it is scarce is going to create value.

And, you know, having written the book, I've attended a lot of cryptocurrency conferences and I would ask people, you know, hey, why are you buying and holding Bitcoin?

And the answer I would always get is, look, if you think about something like the U.S.

dollar,

The Federal Reserve, our national central bank, can basically create dollars in infinite quantities.

On the other hand, Bitcoin is very disciplined because you cannot go out and create more Bitcoin if there is more demand.

So if there is going to be stable or rising demand for Bitcoin, the supply is constrained.

Surely the value must go in only one direction, which is up.

That's certainly logical, but it's a sort of perverted logic because it suggests that just because something is scarce, it is going to hold value.

Of course, there have been other things, including commodities like gold, whose price is to a large extent based on scarcity.