What Makes Bitcoin Valuable?

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Bitcoin, the most popular type of cryptocurrency, was pioneered by Satoshi Nakamoto back in 2008. It is an innovation of other digital currencies like Ecash, Digicash, and Bitgold. Bitcoin rose to popularity when it became the most traded cryptocurrency in 2013. However, this emerging digital asset was first intended to be a medium of exchange between users.

Cryptocurrency is a type of digital asset that is secured by encryptions called cryptography. Crypto users acquire this currency in exchange platforms. They will then be provided with digital wallets to store their “coins” or currencies. Transferring and receiving of cryptocurrency funds are usually recorded in public ledgers known as “blockchains.” These systems work in a decentralised manner that runs across a network of computers all over the world. Since cryptocurrencies are decentralised, no central banks of the federal government can own and control this digital asset. Developers used “Stealth Addresses” to ensure the privacy and anonymity of Bitcoin users. This mechanism works by creating a one-time address for every transaction made using Bitcoins or any other cryptocurrency.

Bitcoin can also be acquired through “cryptocurrency mining.” Miners worldwide compete to solve complex mathematical problems, and in turn, they will be rewarded with newly-minted Bitcoins. However, this type of Bitcoin acquisition is very challenging and requires technical skills. Moreover, cryptocurrency mining is also a race among enthusiasts and entails an investment in specialised hardware and software.

Trading Bitcoins is more popular than Bitcoins being used as a medium of exchange for goods and services. Numerous countries are already participating in cryptocurrency, particularly Bitcoin, trade. The United States is the top country that is actively trading cryptocurrencies, with approximately $1.5 Billion in Bitcoins in their trade market. Russia, Nigeria, the rest of Europe, and China followed the United States in actively trading cryptocurrencies. Financial experts would view cryptocurrency as a high-risk investment. These can be attributed to the volatile market it presents. However, like any other financial investment, a massive gain of revenue is parallel to possible losses.  Crypto Trading Platforms are now made accessible and convenient because of this increasing trend. Improvement of cryptocurrency exchange is already being implemented, making it secure and easy to use.

The advantageous attributes of Bitcoins and other cryptocurrencies are the foremost reason why enthusiasts see it as an alternative to fiat money. But why is Bitcoin valuable?

Currency Value

Currency can only be valuable if it can uphold its value without depreciating over time. Back in ancient times, precious metals like gold or diamond were used as a method of exchange, primarily because they have stable value. Putting into simplest terms, if a currency is a store of value, it can be usable, meaning it can be stored, exchanged, and retrieved without its value deteriorate. 

The mechanism of exchange evolved according to the changing needs of societies. Today, paper money became the representative of minted currencies. They do not have the intrinsic properties of gold or other precious gems, but they are representative and can be exchanged for goods and services.

At present, most countries are already adapting fiat currency and left their reliability on gold supplies. Fiat currencies are currencies issued by the government that does not rely on gold and silver reserves. The value of fiat money heavily relies on the government stability who issued it and on the law of supply and demand. Examples of fiat money are U.S. dollars, Euros, Yen, and other major currencies.

Bitcoin’s Characteristics That Make It Valuable:

  1. Scarcity 

Ensuring that the currency supply is adequate is significant in maintaining its value. If available goods are less compared to the money supply, their prices will skyrocket. On the other hand, if a money supply is too small, this will also cause economic problems, and later on, economic collapse.

Bitcoin white paper indicates that the supply of coins will be capped at 21 million. At present, the collection of Bitcoin is approximately 18 million. Bitcoin is successfully mined roughly every four years, and the supply should exceed 19 million by 2022. Miners are in the race in the quest for the other Bitcoins left. When all the Bitcoins had been mined, and the U.S. government could not keep up producing bills equivalent to this digital asset, this can be challenging. The scarcity of currency drives its value higher, similar to gold and diamonds.

2. Divisibility

Currencies must be divisible in small incremental units. For it to be a successful medium of exchange, its divisibility must be flexible. The 21 million Bitcoins is much smaller than the circulation of global fiat currencies. Its smallest unit is known as “Satoshi,” which is equal to 0.00000001. The advantage is that individual Satoshi units can be flexibly distributed globally. The degree of Bitcoin’s divisibility is far more significant than any fiat currency, including U.S. dollars. One Satoshi is 1/100,000,000 of 1 Bitcoin, while a U.S. dollar can only be divided into cents of 1/100.

3. Utility

Consumers must effectively use currency as a medium of exchange for goods and services. Operating on a blockchain system is the most significant lead of Bitcoin when it comes to utility. Blockchains are decentralised, distributed, and public ledger systems that do not need constant structure verification. These features and the blockchains’ flexibility make Bitcoin’s utility possible even outside the cryptocurrency space.

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4. Transportability

Transfer of currency must be convenient and accessible for users for it to be economically successful. Bitcoin can be transferred via digital wallets anytime and anywhere with minimal transfer costs. The traditional transfer of money usually takes time, specifically with large amounts. These are not a challenge with Bitcoins. No matter what amount, users can conveniently transfer Bitcoins.

5. Durability

Fiat currencies’ durability, specifically in their paper form, is one of its disadvantages. The possibility of being torn and burnt is always seen, making it unusable. This lapse is not true for cryptocurrencies, making them even more valuable. Bitcoins are also impossible to counterfeit; this is because of the decentralised blockchain system that controls them.