ELI5: What actually makes makes currency worth anything? : explainlikeimfive
One reason why fiat money has value, is that the government insists that people pay taxes, and the only payment of taxes they will accept is in their own currency. So, everyone has to earn or acquire enough in that currency to pay their taxes.
If one day individuals decide to not put any value behind XYZ-Therum Crypto (using a generic name), won't that cause a collapse?
Yes is your answer. As at July 29 2020, no governments allow citizens to pay taxes with cryptocurrency, unlike fiat currency. Thus "If nobody is actually using them, that means the platform has no adoption, which means the tokens aren't worth anything and it's all just a dangerous speculative pricing game..."
For more detail, read ELI5:Crypto currencies how are they actually worth anything? : explainlikeimfive.
TL;DR: BTC's intrinsic value is represented by fractional participation in the 'illegal economy.'
You're getting a ton of 'BTC is fiat!', which feels true, but this isn't really true. Its the same situation for the USD, as much as people like to scream "THE DOLLAR IS JUST FIAT!!" over at places like zerohedge (don't go there - that website is trash).
Let's start with the USD (but the same is true about the yen, euro, ruble, etc). The thing about the US dollar is that there is an unequivocal end demand for US dollars, imbuing it with an intrinsic worth: if you want any level of participation in the US economy, you need dollars to buy it (to get access). Think of it this way - the US dollar is the vehicle by which you gain access to the US economy.
"But but but you can just convert....." No you can't 'just convert'. What would you say if your employer told you tomorrow that they were going to pay you in rubles, euros, yen or even gold? You wouldn't say anything - you'd quit. Why? Because you have to convert to USD to do anything within the bounds of the US economy. Paying your rent, going to Kroger, buying a car, getting a computer, hiring a maid, paying your taxes all require USD. In the case of your employer paying you in an alternative currency, instead of quitting, you might demand a raise to cover transaction costs, taxes and hassle as you convert back to USD.....so you can participate in the US economy. As such, there is a floating but measurable demand for USD. It is not fiat in the way that that it is typically described.
In slightly more technical terms: the 'intrinsic value' of the USD is a 'right of participation' within the US economy and all ROPs have an intrinsic value. We can debate the value of the ROP, but we are both gonna agree its there. I come on here all the time and talk about how the size of your money supply needs to be linked to the size of the economy - this is the manifestation of that link and an explanation of precisely why it has to be linked. SIDENOTE: John Nash (Nash Equilibrium & A Beautiful Mind) was working on 'solving' the precise math on this when he died, but he admittedly did not think it was a solvable problem.
Back to BitCoin: BTC's intrinsic value is tied to the size of the 'BTC economy' in that the value of a single bitcoin represents a 'right to participate' in the BTC economy. So what do people use BTC for? Well, let's be honest: mostly illegal shit. Here's a really interesting thought piece by a guy who tried to value BTC by measuring against an estimate of the illegal economies that BTC helps to facilitate. We can argue the particulars in this piece all day long, but I really like the economic/financial construction behind the theory - the guy is definitely approaching it the right way.
Now there are some obvious problems here, with the most obvious two being: 1) you are 'long' illegal activity which is very risky from an investment standpoint (I don't mean BTC holders 'go to jail', I mean you have no reasonable recourse if shit goes against you, such as criminal prosecution of the criminals that comprise the BTC economy); and 2) governments want to maintain their currency monopolies and will be fighting you forever (and again you have no recourse).
So how does BTC become really valuable? If BTC is allowed to edge in on the 'legit' economy, then BTC becomes very valuable b/c it becomes a viable alternative to traditional currencies (eg, you now get global access to local economies.)
However, let's be super fucking honest: the last thing the US gov't is going to allow is for a competitor to the USD, so when you buy BTC keep in mind that the government will be fighting you. And yes, they can stop the growth of BTC by restricting access by preventing any company that does business in the US from accepting BTC in any, way shape or form. Additionally they could prevent any transaction that might have come from BTC via existing money laundering laws. That alone could (close to) zero BTC overnight. If you think that could never happen, you're living in fantasy land.
In summary: BTC is granting you fractional participation in an illegal economy - that's its intrinsic value. However, I would not call it a currency (or an asset or a value store) because you do not have any of the legal protections that are inherent with currencies, assets or value stores. This is why its speculative as fuck.
Source: current quant hedge fund manager with a career on wall st. People like me get drunk together and talk about this shit all the time.