Do Cryptocurrencies Have Lasting Value?
Crypto’s long-term potential may lie in the blockchain technology that supports it.
Key Takeaways
More people now own cryptocurrencies despite the historical sharp volatility often seen in this asset class.
Blockchain technology could have practical applications in a wide range of industries.
We believe each cryptocurrency’s value ultimately depends on the value of its underlying blockchain technology.
If you follow the news, you know cryptocurrencies dominated headlines last year.
According to one estimate, roughly 562 million people, or 6.8% of the global population, now own some form of cryptocurrency.1 In early January, its global market capitalization was nearly $3.5 trillion.2
Despite crypto’s recent performance, many investors may be concerned about its historical volatility. According to a Pew Research poll, about 63% of Americans say they have no or little confidence in the current methods for using, trading or investing in crypto. Only about 5% were very or extremely confident.3
It may be too early to determine whether cryptocurrency is a productive asset or a vehicle for speculation. Over the long term, we believe each cryptocurrency’s value will hinge on the underlying software powering it: blockchain.
Understanding Blockchain’s Impact on Cryptocurrency Value
Blockchains are a type of digital infrastructure with many potential uses. Cryptocurrencies are the means through which we engage with this infrastructure.
Imagine blockchain as a distributed, typically public, ledger hosted on computer servers worldwide. Transactions are broadcast to the entire blockchain; for example, Person A paid one coin to Person B. Participants in the blockchain can view and audit all transactions.
Blockchains are designed to be extremely hard to alter, making them resistant to fraud or theft. It’s not easy for a bad actor to change the ledger by saying Person A actually gave that token to Person C.
This built-in security makes blockchain a good option for advanced database management solutions. For example, rather than recording how many tokens Person A possesses, a blockchain could securely store personal data, ownership records and other information.
Building software applications (distributed apps or dApps) on top of blockchains is possible. These dApps could have applications in a range of industries.
Supply and Demand Dynamics in Blockchain Technology
Each blockchain platform has its own native cryptocurrency, such as Ethereum and its ether (ETH) currency or Solana and its SOL currency.
Cryptocurrencies are the method by which users pay (or receive payment) to add an entry to a blockchain’s ledger. Figure 1 summarizes a typical blockchain transaction.
Figure 1 | How Does a Blockchain Work?
Source: American Century Investments.
The market value of a cryptocurrency token reflects demand, the number of parties who want to add transactions to a blockchain, and supply, the number of parties willing to use their computing power to maintain and update the ledger.
If a blockchain or a dApp built on that blockchain became popular, people would have to use its native cryptocurrency to access its functionality. It’s like traveling to another country. You’ll probably have to conduct the transaction in the local currency to buy a bottle of local wine.
Want to use Solana or an application or service built on this platform? Then you must pay with SOL. This is how the value of a blockchain drives the value of its corresponding cryptocurrency.
A good example is “Star Atlas,” an in-development video game built on the Solana blockchain. You need SOL to cover the cost of in-game transactions to play the game. You might have to buy SOL tokens with a fiat currency like the U.S. dollar or another cryptocurrency.
Innovative Uses of Blockchain Across Industries
Blockchain could form the foundation for use cases that achieve widespread business or consumer use. Examples include:
Cross-Border Payments
Several companies already use cryptocurrencies to make sending money from one country to another easier and less expensive. This low-cost solution may undermine existing payment services.
Identity Resolution
Identity resolution is a solution that compiles an accurate record of the data associated with a specific person.
Blockchains might store individuals’ health records and offer quick, secure access to medical providers. This could support more accurate and available health records and increase efficiency.
A person’s work history and resume could live in one place, streamlining the hiring process.
Real Estate
Blockchain-based solutions could record real estate ownership, making trading in properties easier and less expensive.
Finance
Blockchains could enable decentralized finance. People might lend directly to one another without going through banks, saving money.
Fiat-backed stablecoins provide dollar liquidity to any individual or country that wants dollars and has an internet connection. Stablecoins offer speedy transferability at a low cost.
Creating cryptocurrencies to represent assets like gold, private equity and harder-to-access classes may make it easier for more people to invest in them. Investors would have the power to trade in these assets 24/7, anywhere in the world.
Insurance
Blockchain-based solutions could provide easily accessed policy and coverage information, speeding up claims processing.
Supply Chain Management
Blockchain-based solutions could centralize data on shipments, inventory and related metadata, simplifying management.
Technology
Vehicle owners could receive digital currency for sharing data about road conditions or traffic from their vehicles’ sensors. This currency could be used to pay for electric car charging, highway tolls or other expenses.
Helium provides cryptocurrency as a reward to people who share their spare wireless bandwidth.4
Entertainment and Social Media
Blockchain tools could let gamers establish ownership of digital assets like maps or weapons inside video games. These assets could then be used across games or consoles.
Blockchain-based social networks might use crypto tokens to reward creators of high-performing content.
Government
Blockchain could power tamper-proof, auditable voting systems.
Blockchain could host urban planning records covering land use, designation of resources, taxing districts or funds allocation.
How Policy Changes Could Boost the Crypto Ecosystem
President Donald Trump has vowed that his administration will be friendlier to the cryptocurrency industry. He has already made several moves in that direction.
David Sacks, a venture capitalist, will serve as AI and crypto czar, a newly created role.5
Paul Atkins, the nominee to lead the U.S. Securities and Exchange Commission, is seen as more supportive of cryptocurrencies and may adjust how crypto regulation is administered.6
Trump called for creating a national Bitcoin reserve during his campaign.7
These changes won’t automatically turn blockchain into a household product, but they may provide regulatory clarity for companies and encourage them to develop new products and use cases.
Challenges and Issues Facing Blockchain Technology
Decentralization in Blockchain: Impact on Intermediaries
In many cases, intermediaries do an important job. Nobody enjoys filling out paperwork for a loan, but banks provide a service by vetting borrowers’ creditworthiness and reducing risk. Intermediaries can also protect investors and users from bad actors and fraud.
To ensure stability, blockchains may have to create new intermediaries or recreate the ones already in place with existing systems.
Why Blockchain Transactions Are Hard to Reverse
A blockchain’s immutable ledger may not always be a good thing. If a transaction involves fraud or theft, the blockchain’s structure could make it harder to correct.
Creating a permanent record of someone’s health or work history might result in them being denied opportunities or services if their record isn’t perfect.
The Structural Constraints of Blockchain Technology
Today, blockchains suffer from a trilemma. They can be decentralized, secure or fast, but only two things at once. Figure 2 provides a conceptual illustration.
For example, the Bitcoin blockchain is known for its strength in decentralization and security but not scalability, which hurts its speed. Transactions could be delayed. Meanwhile, the Cosmos blockchain’s advantages are decentralization and scalability, but they are less secure.
Figure 2 | Blockchains Tend to Excel in One or Two Areas
Source: American Century Investments.
The industry is actively seeking solutions to this trilemma. Despite this challenge, blockchain technology still holds significant value. Developers should carefully consider which blockchain to use for each specific application.
Is Blockchain a Solution in Search of a Problem?
In some cases, blockchain technology may not be the most appropriate solution. When blockchain doesn’t have an advantage over an existing option, using it might not make sense.
Consumer-oriented applications leveraging blockchain technology have yet to reach mass adoption. Unless the technology evolves and applications proliferate, its potential may remain untapped. Blockchain may remain nothing more than an intellectually beautiful but impractical technology.
Crypto Value: More Than Just Market Prices
When evaluating the long-term value of cryptocurrencies, we believe it’s essential to assess the blockchains on which they operate. Blockchains have the potential to offer a range of secure, cost-effective applications for multiple industries. A useful blockchain will enhance the long-term value of its native cryptocurrency.
We continue to monitor the sector to see how blockchain technology and dApps evolve for emerging popular use cases.
Authors
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Triple-A, “The State of Global Cryptocurrency Ownership in 2024,” May 24, 2024.
CoinGecko, Global Cryptocurrency Market Cap Charts, as of 1/2/2025.
Michelle Faverio, Wyatt Dawson and Olivia Sidoti, “Majority of Americans Aren’t Confident in the Safety and Reliability of Cryptocurrency,” Pew Research Center, October 24, 2024.
Helium, accessed 1/2/2025.
Preetika Rana, “Trump Plans to Appoint Musk Confidant David Sacks as AI, Crypto Czar,” Wall Street Journal, December 5, 2024.
Stefania Palma, “Crypto Advocate Paul Atkins Picked as SEC Chair by Donald Trump,” Financial Times, December 4, 2024.
Kimberlee Kruesi, “Trump Calls for US to be ‘Crypto Capital of the Planet’ in Appeal to Nashville Bitcoin Conference,” Associated Press, July 24, 2024.
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
Diversification does not assure a profit nor does it protect against loss of principal.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.