Bitcoin has its value thanks to a multitude of distinct features. Ultimately, both crypto and fiat currencies have value due to collective trust. As long as society believes in the fiat system, money will continue to have value. The same can apply to Bitcoin: it has value because people think it does, but there is more to consider.
Unlike money, Bitcoin has no centralised bank to control and regulate it, and its decentralised nature allows for the establishment of a unique financial system. Blockchain technology provides security, utility and other benefits. It also gives a novel approach to dealing with the transfer of wealth worldwide. In many aspects, Bitcoin may also operate as a store of value similar to gold.
The Value of Traditional Currencies
A functional currency must possess six characteristics: acceptability, divisibility, durability, portability, scarcity and uniformity. These properties enable the currency’s broad adoption in the economy, restrict monetary inflation and safeguard the security and safety of the currencies.
Currency is helpful if it functions as a store of value or retains its relative value over time. Many cultures have employed commodities or precious metals as a form of payment throughout history due to their relatively stable value.
In the modern age, government-issued currencies are usually fiat money that lacks intrinsic value and is regulated by the government as legal tender. For instance, a $20 note may be used to buy $20 worth of things, time, and effort. However, the actual piece of paper used to pay has no intrinsic value.
Fiat money is not backed by any tangible asset but rather by the faith of its holders and the authority of the government. A fiat currency works successfully when the public has sufficient faith in its capacity to serve as a store of purchasing power. Additionally, it must be supported by the full credit of the government that issues prints it as legal money for financial transactions.
The Value of Cryptocurrencies
Cryptocurrencies are digital assets that integrate the science of cryptography with blockchain technology to provide faster, cheaper, and more secure financial transactions. Because it is global and not susceptible to authoritarian government control or third-party interference, decentralised crypto does all that conventional fiat money does and much more.
Despite certain similarities between cryptocurrencies and our traditional concept of money, there are also significant distinctions. Although some cryptocurrencies, such as PAXG, are tied to commodities such as gold, most of them have no underlying asset. Instead, trust plays an essential part in a cryptocurrency’s value. People invest in Bitcoin, for instance, because they know that others trust Bitcoin and accept it as a medium of payment and exchange.
The usefulness or utility of decentralised finance (Defi) protocols or decentralised applications (dApp) can also impact the value of specific cryptocurrencies. Utility tokens may be needed if you want to access particular services or platforms. A highly demanded service will add value to its utility token. Not all cryptocurrencies are identical; thus, the value of any coin, token, or project also relies on its unique characteristics.
Why Do Bitcoins Have Value?
Bitcoin has value for the same reason paper currency does: it is a convenient currency form that people widely accept. It is used to purchase and sell items and transfer value. However, in contrast to the U.S. dollar, whose value and legal status are enforced by the government, Bitcoin’s value is derived from its code, infrastructure, scarcity, and adoption.
Bitcoin’s code offers the characteristics of conventional fiat money, such as scarcity, divisibility, acceptability, durability, portability and uniformity, although it is intangible. Bitcoin is also decentralised and can be used without the need for intermediaries. It offers some degree of transparency, is accessible to everyone with an internet connection, and is difficult to forge.
Importantly, it can be used as a store of value like gold and other commodities. However, unlike their physical equivalents, Bitcoin can be transmitted in minutes through communication networks.
Bitcoin’s Valuable Characteristics
Why do Bitcoins have value? Let’s go further into some of Bitcoin’s valuable properties, namely scarcity, divisibility, acceptability, portability, durability, uniformity and decentralisation.
- Scarcity: The maximum supply of Bitcoin is 21 million. Once the number of coins in circulation reaches 21 million around 2140, no more can be “mined” Theoretically, after every Bitcoin has been mined, Bitcoin should be deflationary. As users lose or burn coins, the supply will diminish, presumably resulting in a price hike. For this reason, Bitcoin holders place a high value on its limited supply or scarcity.
- Divisibility: One Bitcoin is divisible into 100000000 Satoshis. Currently, one Satoshi equals 0.00000001 BTC, the smallest unit of Bitcoin. This degree of division is embedded into Bitcoin’s source code and can be adjusted to 16 or more decimal places if necessary.
- Acceptability: An increasing number of individuals and businesses have adopted BTC as a payment method, and the blockchain sector continues to expand. Many distinguish Bitcoin from non-currency and other counterfeit money and are prepared to accept it as payment, although its acceptability is still inferior to that of fiat currencies.
- Portability: Bitcoin is the most portable digital money ever created. To access your BTC holdings anywhere, you just need an Internet connection and your private keys.
- Durability: Any Bitcoin or Satoshi can be reused indefinitely without degrading. Bitcoin is very durable, provided that there are still computers supporting the network. Bitcoin is more durable than fiat currency and precious metals and cannot be destroyed like cash.
- Uniformity: Every Bitcoin transaction is recorded on a distributed ledger and safeguarded by the effort of nodes’ computation work. The blockchain system addresses the double-spending issue that impeded the adoption of preceding digital currencies. Consequently, all Bitcoin transactions are non-counterfeit-able and irreversible.
- Decentralisation: By removing the central authority, blockchains empower and liberate the user community. Due to the open-source nature of the Bitcoin network, anybody can contribute to improving it. Bitcoin’s decentralisation makes it a very secure and resilient system. No one network node can make choices on everyone’s behalf. Validation of transactions and protocol upgrades need group agreement to prevent misuse and abuse of Bitcoin.
The Challenges of Valuing Bitcoin
Bitcoin’s function as a store of value depends upon its effectiveness as a medium of exchange. If Bitcoin fails to gain traction as a means of exchange, it will not be accepted as a store of value.
Throughout most of its existence, speculation has been the main driver of Bitcoin’s price. Bitcoin has shown bubble-like traits, including astronomical price increases and a media frenzy. This is anticipated to decrease as Bitcoin’s mainstream use increases, but the future is unknown.
Bitcoin’s usefulness and transferability are hampered by the complications around bitcoin storage and trade. In recent years, digital money has been plagued by hacking, theft, and fraud.
The price that people are prepared to pay for Bitcoins is a socially agreed-upon amount motivated by supply and demand, just like any other asset or valuable item. Because they are virtual and only exist inside computer networks, Bitcoins are scarce and have a cost of production. Many people don’t understand that digital cryptocurrencies maintain value in this manner, so they believe Bitcoins are worthless.
FAQs about Bitcoin’s Value
Is Bitcoin Money?
While Bitcoin has a number of characteristics similar to money, authorities and crypto experts remain sceptical that it now functions as money. This is because Bitcoin commercial transactions and Bitcoin-denominated items are not widespread. Even while anyone exchanges Bitcoin in enormous volumes and moves value across the network, there are relatively few commercial activities.
Is Bitcoins Fairly Valued?
Bitcoin’s market price is very volatile and vulnerable to price changes. Thus, the market price will fluctuate significantly from its fair or intrinsic value at any particular time. Oversold markets have a tendency to recover, and overbought markets cool over time. Without the benefit of hindsight, it is difficult to determine at any particular time whether Bitcoins are reasonably priced.
What Impacts Bitcoin’s Price?
Bitcoin is neither issued by a centralised bank nor backed by a government. As a result, the monetary policy instruments, inflation rates, and economic growth assessments that traditionally affect the value of a currency do not apply to Bitcoin. Bitcoin functions more as a commodity used to hold value; hence, the following variables affect its price:
- The supply of Bitcoin and the market’s demands
- The cost of Bitcoin production through the mining process
- The number of rival cryptocurrencies
- Regulations governing its sale and use
- Media and news
How Much Does it Cost to Produce 1 BTC?
The cost of producing one bitcoin is contingent on the price of power, the mining difficulty, the block reward, and the miners’ energy consumption. With a block reward of 6.25 BTC, a difficulty of 27.5 trillion, a price of $0.15 per kWh, and an energy efficiency of 45 joules per Satoshis, the cost to manufacture one bitcoin is $35,500.
Where to Buy Bitcoin (BTC)?
Bitcoin (BTC) is one of the most popular cryptocurrencies, so you have several purchasing options for these digital assets. Among these exchanges, CoinSpot is our highest-rated exchange for Bitcoin buyers of all levels of experience. According to many CoinSpot reviews Reddit users made, the platform simplifies the purchase and sale of Bitcoin and all other cryptocurrencies for novice and seasoned traders. It provides everything you need to buy, sell, and manage digital assets, including competitive trading costs, multilayered security, and 24/7 support.
