Interestingly, I get more inquiries these days to buy people's Bitcoin. People are just desperate to sell it, primarily if their livelihood depends on it. That, I think, is the mistake. It is a very speculative asset.
Let's go back to the time when people invented money. Initially, people used salt as a universal exchange vehicle. Eventually, people switched to gold, probably due to the fact that it tastes better when we verify the validity. It is even more painful to check Bitcoin. You need to hire a company, especially if you lost some of your keys. I expect a similar solution and an exchange of crypto with plain old replicated databases in the future. I see the retired IBM consultant smiling now. It has a smaller carbon footprint. Why not?
United States Dollars are the main competitor of Bitcoin. They used to be less trusted than Sterling. Banks could issue their own notes. There was a similar decentralization as cryptocurrencies have today. Trust is an issue. There is a recent push to regulate stablecoins. Their issuers link them to the dollar by keeping deposits. Regulation will help the case of these transactional money market cryptocurrencies.
The other types of cryptocurrencies are rather capital assets that have a floating valuation. The value depends on the demand and the spot supply. The decision of Tesla to accept Bitcoin raised the price since there was an expectation of increasing demand in the future. Improvement in computer security also increases the value as there is less risk of losing the valuable asset. The issuance of new cryptocurrencies decreases the value, diverting some of the investment. The most significant impact on Bitcoin is media attention, which is again a finite asset. Tesla's popularity helped.
What inspired Bitcoin? We do not know since the inventor is also unknown. However, it was probably the centralized nature of world trade and income inequality or buying black market goods like expired weed.
Interest and exchange rates are stereotyped as decisions made in hidden rooms in the company of a priceless glass of fine scotch. One issue is that religious views exclude some. The lack of prestige may exclude others. Remember the time of the Great Recession ten years ago. Less prestigious professionals low on cash may not get a loan, so they may issue their own cryptocurrency.
When people are short on cash, they can pay with checks if there is a deposit somewhere else. Alternatively, they may create a partnership. Once they have built assets together, they can monetize them for real dollars. Cryptocurrencies are similar to these partnerships. People with similar interests buy them, raising the popularity, expecting future demand to raise the price. It is a bit similar to the concept of Groupon. More buyers make the business possible.
I think cryptocurrencies will eventually replace shares of corporations or funds. There are already some that are signed contracts. Many more uses are imaginable. Since they are still easy to issue, volatile assets or philanthropy could be reasons to issue cryptocurrencies.
The most interesting use cases may be simulation and economics research. You may issue your coin for a game and sell and buy more to simulate inflation or deflation. You may sell and buy to keep the exchange rate stable like the Deutsche Mark.
The game is on.