Why Is Bitcoin So Valuable?
Bitcoin was launched as an alternative to currency because it has no physical denominations. They only exist inside an interlinked computer network system. However, bitcoins are not the only types of currency in this format; the US dollar’s supply only exists digitally instead of in actual pieces of green paper. Bitcoin has taken the headlines and many are eager to learn about this new mode of exchange. Here are some things you should know about it.
What is a Bitcoin?
Bitcoin is a currency that was created in 2009 by an unknown person who has been going by the alias Satoshi Nakamoto. Transactions with bitcoins are made without any middle men, which means that there are no banks involved. There are no fees and there’s no need for you to disclose your real name at all. This is getting more and more popular and merchants are beginning to accept this payment option. Nowadays, you can buy web services, pizza and even spa treatments with bitcoin.
Bitcoin has been preferred by many because it can be used to buy things anonymously. International payments are also easier and cheaper because these are not tied to any country or are regulated by anyone. There are no dues and this could be a big advantage for smaller companies. For some people, they just harvest as much bitcoin as they can, hoping that their value increases.
Why Do Currencies Have Value?
It is a basic principle in economics that values are subjective. Some items are more valuable than others because more people desire them. Currencies serve several different crucial functions in an economy since they make trade easier as money can be traded for nearly any good and service. Currencies are regarded by their respective jurisdictions as legal tender, and this is why they can be exchanged freely for goods, services or to effect payment of debts, which other mediums of exchange cannot do.
Currencies also provide a universal measurement for accounting purposes. Currency is used as a store of value, which makes investing, banking and saving much easier.
Where do They Get Their Value?
Basically, bitcoins get value just like anything else — and this is because people want them so much. Just like any other currency and commodity, bitcoins follow the rules of supply and demand. A lot of seasoned businessmen have taken advantage of currency as tools to make trading easier as these can convert goods through a widely tradable commodity. The proceeds can be used to buy almost anything.
While bitcoins can be the next big thing for investment, there are limits to its value. While fiat currencies get their value from their respective governments which back up their value and while gold is valuable in itself, bitcoin does not work like them in that it is not universally accepted. There are limits as to what it can be used for.
Why Are They So Valuable?
Bitcoins get their unique value from the fact that although they are not backed up or widely accepted, they have generated an entire ecosystem of followers that are very willing to trade and accept. There are even some who consider bitcoin to be more valuable than other currencies. True enough, it has some advantage over traditional currencies and that is why this is the preferred currency for digital transfers that can be used across borders.
Another reason is because there is a predetermined cap set on the total number of bitcoins that will ever exist. This means that they cannot be devalued through inflation as much as others will. There is also a key advantage of bitcoins called censorship resistance, which is its ability to be used for some transactions that could be censored by other payment networks.
Disadvantages of Bitcoins
Just like any other commodity, currency or stocks in the exchange, a bitcoin’s value can depreciate drastically if the situation calls for it. Its value is almost dictated entirely for those who value it as currency, so it could be valuable now and be of almost no value the next minute if the situation calls for it. Also, the exchange value is limited in the sense that not everyone accepts bitcoin. Many might consider it as an alternative to currency, but it only has this status for so long as people accept it because it is not legal tender.
Just like most other things, bitcoins can be the next big thing, but it can also mean a downfall if one gets into it without knowing anything about it. Do you have any experience with bitcoin? Share them with us in the comments below.
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