Concept of Bubble and Intrinsic Value :

These are two very classical finance terms so don’t worry I will explain it with a very simple example.so in 2008, you must have heard that there was a financial housing financial crisis.If you ask someone in the field of investment banking why did this financial crisis happen? They might say there was a housing bubble , it burst and banks collapsed because of it

The simple explanation is that commercial banks, they’re giving loans to anyone, literally anyone on the road to go and buy houses. Why? because the banks believed that the housing prices will always go up and will never come down. The bank can sell off the house and make money so this is the philosophy behind that.It was called the subprime mortgage crisis.

But banks ended up giving loans to people who could not afford to pay the banks back.and the housing asset as a result collapsed and the banks had to take a lot of financial hit and the 2008 financial crisis happended.so simple answer to why this crisis happened simple answer to this is real estate bubble burst.

In the nineties there was a dot com burst. Why ? because of the dot com bubble bust.in 90s there were companies that did not have any business model at all like zero business model but they were internet based companies so they were going to investors pitching them lucrative dreams and raising millions. So that was the concept covered in the Peter Thiel book which is called zero to one .give it a read .you will understand more about this bubble and why the crisis happened in the 90s.

The first point to understand is in any economy there are some asset classes like real estate , stock market , small caps , debt. There will be certain bubbles forming here and there.so you should stay away from these bubbles 

How is this applicable to cryptocurrencies?

So there are ten thousand cryptocurrencies right now.Many of them are in bubble right now.You don’t need to invest to invest your money in 50, 60,70 cryptocurrencies.you just simply need to pick some good fundamental crypto currencies where the intrinsic value is high.All assets have some intrinsic values.

Top 3 Cryptocurrencies that have strong intrinsic value 

1)Bitcoin :

The first and most popular cryptocurrency that has intrinsic value is bitcoin.bitcoin was imagined as a replacement of currency.it was seen as something that could replace what is called as fiat currency.Fiat currencies like INR , US dollar All these are government backed currencies.so bitcoin was seen as replacement to this currency.

Right measure to compare bitcoin is with gold.now question arrives in your mind that what makes gold valuable means what gives gold intrinsic value?The answer is that the thing that makes gold valuable is scarcity, that there is a finite supply of gold and it has been in existence for centuries now.

Even fiat currencies used to be gold backed what that means is if government wanted to print let’s say 1000 crore then they needed to have that much amount of gold in their reserve and only then they could print this money.But then we moved from away from this gold standard and that is where the problem emanated from.

Believers of bitcoin believe in something called decentralization. Means bitcoin is not controlled by anyone.There is finite supply of bitcoin that is what gives intrinsic value to bitcoin.

Why does bitcoin have intrinsic value ?

1)Because there is finite supply of bitcoin There are only 21 million bitcoins 

2)Mining: There is a process called the mining of bitcoins. these 21 million bitcoins have to be mined over a certain period of time. this mining process is very time-consuming and extensive.it involves solving a lot of complex mathematical equations. It makes bitcoin have intrinsic value.

3)Blockchain network: This is a digital ledger system. And this network is hack proof and transparent.so it’s very easy to follow along, who is buying bitcoin and who is selling everything is recorded as a central ledger.

So because of this transparency, limited supply, and the difficult mining process, bitcoin has intrinsic value.

2)Ethereum :

Ethereum is programmable money. Ethereum has a smart contract capability. ethereum was built as a platform to run programmatic smart contracts and applications with its own currency ether. Ethereum is different from bitcoin, Ethereum block times currently stand at between 10 to 15 seconds, compared to bitcoin’s 10 minutes.

Currently, bitcoin and ethereum both are built on the proof of work consensus mechanism. The verification and confirmation of transactions require a network-wide consensus by miners, who are rewarded for processing transactions and executing smart contracts. But currently, ethereum is shifting towards the proof of stake model. 

3)Polygon (Matic)

Polygon is a blockchain scalability platform called Ethereum’s internet of blockchain.And it aims to create a multi-chain ecosystem of ethereum compatible blockchains. 

Ethereum incorporates smart technology .There are a bunch of decentralized apps that are connected to the ethereum network. So it is like the internet in the 90’s that the speed sucks and the cost is very high and because of that network has gotten very slow and they’re not able to manage the workload. So there is a lot of friction in terms of execution.

From a technology perspective ether is great but from a processing point of view from a cost friction point of view ether just sucks .So that is where polygon matic comes in the picture.

Polygon matic supports ethereum and it patches together different ethereum based networks , they are going to make the entire operations and processing simpler and faster.that is the prime value add to the polygon matic .polygon is trying to solve the scalability and usability issues with ethereum while offering faster and cheaper transactions.