So lately I've been hearing to a lot of people asking why Bitcoin has value and I've decided to write this little article to help people understand a bit more about the topic.
Let me start with a simple question:
I would say that value can be a very subjective concept. What is valuable to me might not be as valuable to you. For example, I love coffee, I would pay $10 for a cup of coffee in the morning if I had to. So I give a lot of value to it. This might not be the case for everyone.
However, if we examine why something like the USD or gold is valuable we can take home some interesting key points.
The dollar has value because you need dollars to pay taxes in the United States. The government accepts no other currency. So if you're going to engage in any kind of commerce whatsoever, you need to use dollars. This creates real value for the currency. Gold has real value because it is rare, hard to find and limited in supply (scarcity). Gold also has some uses in which consumers derive satisfaction from, like making jewelry.
The combination of utility and scarcity creates value by which price is determined based on the market鈥檚 supply and demand.
So there are 2 key variables which determine value:
Like gold, Bitcoin is also scarce: its supply is limited. There are currently just over 16.2m Bitcoin in circulation and the maximum that will ever exist is capped at 21 million.
Bitcoin is useful because is a decentralized, borderless and secure way of making payments, thus, simplifies the exchange of goods and services. It is also useful because it is built on open protocols, meaning, anyone can innovate on top of it and make the system better.
Besides value as a payment system, It's important to highlight Bitcoin's value as an asset class (a store of wealth). I would say that right now Bitcoin is more valuable as an asset class that as a payment system, but as mass adoption continues to develop I predict this will change in the future.
Furthermore, Bitcoin is also valuable because is the most well known of all cryptocurrencies. Thanks to price surges, increasing media attention, and word-of-mouth Bitcoin is becoming more popular every single day. This is not the case for cryptos like Dash, Moreno or Zcash. This creates something called "The Network Effect" which means that something becomes more valuable as more people use it.
One of the best examples of "The Network Effect" is the telephone. During its early days when few people had access to telephones their utility, and therefore their value, were minimal. Today practically everyone has a phone, so its utility and value are so high as to be unquestionable. In this way, the value of Bitcoin is directly tied to the number of its users and the frequency of their use.
Bitcoin's value is determined by simple supply and demand. Put simply, it is the ongoing interaction between buyers and sellers trading with each other that determines the specific price of Bitcoin (and everything else). Remember that price is a reflection of value, nevertheless, sometimes it can be pure speculation.
There you have it, I hope you learned something useful by reading this article 馃槄 comment down below if you think I left out something important or if you disagree with anything.
By the way, I'm writing this article in a cafe in Downtown Vancouver and one guy has a sticker of Ripple on his laptop and another two guys are talking about how to store your cryptos. I just think that's pretty cool and makes me very excited about the future of cryptocurrency. I also feel the urge to talk to them and ask them what coins are they hodling lol (I won't).
