Bitcoin (BTC) is a digital currency that serves as an alternative to fiat money controlled by central banks. On the other hand, the latter is valuable since a central bank issues it and is widely used in a market. Bitcoin’s network is decentralized, and it is not commonly used in retail transactions. But the question arises Why is bitcoin valuable?
One could say that Bitcoin’s value is like that of precious metals. It’s true that both are limited and have only a few uses. In the industrial world, gold and other precious metals like silver are used. Bitcoin’s underlying technology, the blockchain, has some benefits in the financial world. Bitcoin’s digital history means that it could even be used to buy things at the store one day.
- Currencies are valuable because they may be used as a store of value and a medium of exchange. They also show six crucial characteristics that allow them to be used in an economy.
- Over millennia, the notion of value in a currency has shifted from physical properties to the speed it uses in an economy.
- Bitcoin has specific characteristics of a currency, but its primary source of value is its limited supply and rising demand.
- Bitcoin’s market capitalization would reach nearly 15% of the global currency market if the price of one bitcoin reached $514,000.
Traditional currencies value
There are six essential things to look for in a good currency: scarcity, divisibility, portability, acceptability, durability, and resistance to counterfeit products are all critical. A coin that has these qualities can be used worldwide in an economy. They also try to keep money prices from going up and ensure that the currencies are safe and secure to use.
Currency is helpful if it can be used as a store of value or if it can keep its value stable over time. Throughout history, many people used goods and services or precious metals to pay for things because they were thought to have a stable value.
People didn’t want to carry around a lot of gold, cocoa beans, or other early forms of money, so they started using minted money instead. There were the first currencies that used metals like silver, gold, and bronze, which had long lives and didn’t go down in value very quickly.
There is a lot of discussion about giving currencies value. Initially, their worth comes from their physical characteristics. For example, if you look at gold, its value comes from how much it costs to get it and how good it looks, and how pure it is.
People use paper money instead of precious metals in the modern world because they don’t have the same value as precious metals. People used to value paper money based on how much gold was behind it. Even today, a few currencies are “representative,” which means that each coin or note can be exchanged for a certain amount of a sure thing.
The Value of Digital Currencies
Any debate about the value of Bitcoin must also talk about how money works. Gold was a good currency because of its physical properties, but it was also cumbersome and hard to move. Paper money is progress, but it takes a lot of time and energy to make and store, and it doesn’t have the mobility of digital currencies. Digital money has migrated away from physical features and toward more useful ones.
As a case study, here’s one: As governor of the Federal Reserve at the time, Ben Bernanke appeared on 60 Minutes and clarified how the agency “saved” insurance giant American International Group (AIG) and other financial institutions from bankruptcy by giving them money. He said this: The interviewer was surprised when he asked if the Fed had made billions of dollars. That wasn’t the whole story.
Bitcoin as currency
People believe currencies have worth, and communities or organizations have chosen that they will be utilized as a means of exchange.
After the gold standard was abolished, fiat currencies became widely used (which mandated that every dollar be backed by a holding of physical gold). Fiat currencies, such as the US dollar, are not backed by any commodity and only have value because a larger system or community recognizes them.
For example, you can go to the store with a $20 bill and buy $20 worth of things, time, and effort. The tangible piece of paper you use to pay, on the other hand, has no inherent worth.
Bitcoin, a cryptocurrency invented and released by a pseudonymous entity known as Satoshi Nakomoto, shares similar attributes with existing currencies such as the US dollar and the Japanese yen as a store of value:
- Bitcoin has a limited supply of 20 million coins. There will never be more than 20 million Bitcoins in circulation. According to many experts, Bitcoin’s value is largely based on its restricted quantity or scarcity.
- It is impossible to copy: No one can counterfeit a Bitcoin because it is based on the blockchain ledger. The blockchain records transactions and ensures that the system runs as per Satoshi Nakomoto’s original regulations.
- Bitcoin is a very transportable cryptocurrency. Money’s easy to transfer from one exchange account or digital wallet to the next.
- Transferable: Bitcoin may be easily transferred from one user to another or from one merchant to another. All you need to transmit Bitcoin to someone is their public key (wallet address).
However, none of these criteria explain Bitcoin’s exponential price growth and unique attraction as a store of value. After all, storing cash isn’t regarded as a solid investing plan – your dollars will normally increase much more in an investment vehicle than in cash. Bitcoin’s value is unique among cryptocurrencies. Someone may create a digital object with all the same features, but no value (in fact many have tried and failed).
Why does bitcoin have value?
No government authorities support Bitcoin, and there are no intermediary banks to help people use it. A network must approve a consensus-based transaction in the Bitcoin network of nodes that are not connected. No government or other monetary authority can act as a counterparty to risk and make lenders whole, so to speak, if a deal goes wrong. But it still has value because many people worldwide exchange it for real currency.
In other words, Bitcoin is valuable “because people believe it is,” according to Bryan Routledge, an associate professor of finance at Carnegie Mellon University’s Tepper School of Business. “And if that sounds a little shaky and wacky, that’s because it is.”
People feel Bitcoin will one day be valued more than it is now, which generates a need for it, and its value, like gold, continues to rise.
Bitcoin Value vs. Other Cryptocurrencies
Ethereum, the second-largest cryptocurrency by market value, is more like oil than Bitcoin. The value of something is linked to how it can be used in the real world, even if those uses haven’t yet become commonplace.
Ethereum may have a clearer use case than Bitcoin, but that doesn’t mean it will stay or go up in value. With so many different cryptocurrencies, experts say that you should keep your crypto investments limited to Bitcoin and Ethereum. Still, all cryptocurrency assets are unregulated and speculative, and there isn’t enough data to make any sure-fire predictions about how your investment will grow in the future. Hence, there isn’t much you can do about it.
Trust is what makes money valuable. Money is a way to trade value. A person or group could use any object to pay for goods and services as long as the people in the area accept it as payment. As money, we used everything from rocks to seashells back then. Hope this will clear the value of bitcoin in your mind. If you have still any query feel free to comment below.