Why Do Bitcoins Have Value?
Bitcoin is the new currency of the digital era. Since its inception in 2009, this emerging asset class has had a positive response from investors and entrepreneurs. Today, Bitcoin’s worth is as valuable as a US dollar or any country’s currency. Simply put, this functional form of money has now crossed over into the buying and selling of goods.
Unlike investments in trading currencies, monetary norms, inflation, and economic changes do not affect Bitcoin. Every discussion of Bitcoin eventually devolves into a debate about what gives Bitcoin its value. Some argue that its worth is incremental, while others think, like gold, it has unlimited potential as a currency. So, who is correct, and what makes a single Bitcoin so valuable?
A cursory examination of the history of money shows that money has worth as long as people think it does. Perception, in essence, is what gives money value. If you think about it, in the future commodities like water could even be used as currency. If there is a need that outweighs the supply, anything has the potential of becoming a currency.
In fact, bartering was the original form of currency, but it got a little too cumbersome to deal with so many forms of trade, so they began trading goods for things deemed precious like shells and pebbles, followed by diamonds and rare metals.
This was followed in recent centuries by government-issued money, which is today the most generally acknowledged form of cash.
Exchangeability, scarcity, and ease of counterfeiting have been the main issues plaguing money since its development. Now, more and more consumers are discovering that using readily portable, stable, and divisible currencies is more convenient.
Significance of Bitcoins
Any consideration of Bitcoin’s worth must also include consideration of the nature of money. The original standard, the Gold standard, was a useful starting point for currency, as it resembled something tangible and valuable. But it was very inconvenient as a currency option. Although paper money is a step forward, it still required manufacturing and storage. And, it can’t compete with the mobility of digital currencies. This new age of currency options, has effectively moved away from the traditional, tangible representation of money, in favor of a more secure, readily-available option.
Bitcoin’s Most Valuable Properties
Let’s have a look at some of the most appealing properties that make bitcoin so valuable.
- Scarcity. Bitcoin’s availability is capped at 21 Million. This was decided when it was created. Eventually, there will be a scarcity of bitcoin availability. When there is scarcity, there is value. In contrast, many other cryptocurrencies can be increased indefinitely.
Unlike fiat currencies, which lose value due to yearly inflation, Bitcoin’s inflation is regulated and managed.
Also, suppose we included Bitcoins that are lost for good (those sent to wrong, non-existent addresses, or those in wallets whose keys have been lost. In that case, the supply is deflationary, implying fewer Bitcoins will be accessible in the future.
- Divisibility. When it comes to divisibility, bitcoins consistently outperform fiat currencies. A bitcoin contains 100,000,000 satoshis, meaning a satoshi is equivalent to 0.00000001 BTC, the smallest unit of Bitcoin.
Bitcoin’s initial code has this degree of division. If necessary, the division level may be increased to 16 or more decimal places, implying that Bitcoin has limitless divisibility.
- Portability. Bitcoins can be exchanged via any communication channel, including the internet, satellites, and even radio waves, making it the most transferrable money ever.
- Exchangeability. Regardless of who owns it or its history, every Bitcoin has the same worth as its counterpart. One ounce of pure gold is always equivalent to another ounce of pure gold, and vice versa. A Bitcoin remains a value symbol that allows exchange for another Bitcoin.
- Durability. Like gold, bitcoins come with excellent durability. Any Bitcoin or Satoshi may be reused indefinitely without losing its value.
- Visibility. Bitcoin is being recognized and accepted by many retailers and users. Many individuals identify Bitcoin as non-currency or other counterfeit money. They are prepared to accept it as a form of payment, even though it is still far from the degree of popularity seen with fiat currencies.
- Decentralization. No authority oversees Bitcoin. No one can censor, manipulate, or modify the network or its transactions, unlike conventional money.
- Accessibility. You don’t need a confirmed bank account to possess or receive Bitcoins. A basic understanding of computers and internet access is enough. The accessibility of Bitcoin makes it ideal for small businesses around the globe.
- Difficulty to Counterfeit. Every Bitcoin transaction is recorded on a distributed ledger and protected by node computation. As a result, the Bitcoin network’s transactions are untraceable and irreversible.
- Programmability. Bitcoin has programmability components, which was missing from the traditional fiat currencies. As it is open-source code, it stands to reason that Bitcoin will be updated in the future and have even more useful features.
- Stability. Stability is a cornerstone concern with money. Bitcoin price stability is one negative element that needs to be addressed. Bitcoin is treated more like a commodity, such as gold, because of its volatility. It is expected to change when Bitcoin becomes more widely used, and there are fewer incentives to speculate on it. Bitcoin is predicted to continue volatile until cryptocurrency use becomes mainstream.
Bitcoin has value for the same reason as paper, and digital banknotes do: it’s a convenient form of widely acknowledged money. It’s utilized to purchase and sell products and a transfer value.
Also, it can be used as a store of value in the same way that gold or other commodities do.
Bitcoin’s intrinsic value is in its perceived safety as a financial investment, so don’t be surprised if there are many opposing views. Just make sure you educate yourself on all of your options so you can make an informed decision regarding its use.