Bitcoin (BTC) is a relatively new technology unfamiliar to many, which makes this type of “new money” raise questions like what makes Bitcoin valuable and how it is determined.
We are aware that not everyone understands how Bitcoins work yet, and it’s reasonable why some might be skeptical about it. However, we believe that as more people learn about it–since it’s much younger compared to traditional currencies, the more they will understand its value and see it as a superior form of currency.
But how do Bitcoins or other digital currencies actually derive their value?
Well, this is a complex interaction between technological, economic, and social factors. However, understanding the workings of fiat currency markets isn’t common knowledge, and most don’t know why dollars or euros are valuable, for example.
What we need to keep in mind is that cryptocurrencies display the same characteristics as the fiat currency system, except they are improved upon in the case of Bitcoin. These attributes, which we’ll analyze below, are what make any type of new currency valuable.
The perceived value of Bitcoin, similar to any asset, is determined by a collective consensus influenced by the forces of supply and demand.
However, there is a segment of people who are skeptical about attributing value to digital assets. This skepticism stems from a hesitance to acknowledge that digital items can possess intrinsic value, leading them to view Bitcoin as valueless.
In contrast, those with a deeper understanding of the Bitcoin system as an engineering marvel on the order of importance of the printing press, and similar to something like the internet itself, will recognize and affirm its value.
So Bitcoin, specifically, is uniquely valuable as a result of its design, 15-year history of near-perfect uptime, and broad acceptance as the largest and most widely used digital currency.
Unlike all other stores of value humans have used in our 5000-year economic history since adopting gold as the first widely used money, Bitcoin was designed to fit perfectly the qualities of the ideal money.
This accomplishment was not possible until today’s world, which is based on interconnected computer and software systems.
The path Bitcoin has taken over its lifespan is as important as the initial design. The sequence of events viewed holistically leads us to believe it is the most valuable asset ever created and the first true money that the world has ever seen.
Let us analyze this further by exploring the following 7 core characteristics.
Bitcoin’s resilience is unparalleled. It exists as long as the blockchain is maintained on even a single computer. Bitcoin’s digital information nature ensures its longevity, as it can persist indefinitely on any computer running the protocol with a full record, of which there are millions of copies of the entire financial ledger active at any given time.
Bitcoin redefines financial mobility. Transactions can occur anywhere with internet access, or even short-band radio, offering near-instantaneous transfers with final settlement typically within an hour.
The unique aspect of Bitcoin is the ability for users to carry their assets by simply memorizing their private keys. This empowers individuals to take their wealth with them in a permissionless way, facilitating seamless global transactions without the need for intermediaries like banks or money transmitters.
The flexibility of Bitcoin is evident in its divisibility. Each bitcoin is composed of 100 million smaller units called satoshis.
As of late 2023, 1 U.S. dollar equates to approximately 2500 satoshis. This granularity makes transactions with Bitcoin efficient. Even if the value of Bitcoin goes up, it can be further subdivided via a soft fork without altering the core protocol or changing the supply.
Every Bitcoin holds equal value, ensuring no single coin is more valuable than another. This uniformity, backed by the impossibility of counterfeiting–due to Bitcoin’s software verification, sets it apart from traditional assets.
The process of mining Bitcoin in accordance with protocol rules naturally incentivizes network participants to maintain this integrity.
Bitcoin is the first object in the known universe with verifiable scarcity. The total supply is capped at 21 million Bitcoins, a limit embedded in the protocol’s code and upheld by network consensus.
The declining supply of coins yet to be mined bolsters demand as Bitcoin gains broader acceptance. This scarcity principle makes people want Bitcoin more, and it is a cornerstone of its value proposition. Additionally, this scarcity is immune to unilateral changes without network-wide agreement.
Bitcoin’s uniformity is secured through software verification, eliminating the possibility of counterfeiting. Unlike physical currencies, Bitcoins have no physical form, and any attempt to counterfeit them would be more costly than mining them legitimately. This inherent network design encourages positive behavior among all participants, reinforcing Bitcoin’s reliability and trustworthiness.
The adoption of digital currencies is on the rise, with the number of global cryptocurrency owners worldwide increasing by 34% during 2023. According to the same report, this rise applies to Bitcoin as well, with a growth of 33%, meaning there were 296 million owners worldwide by the end of 2023 (51% of global crypto owners).
As knowledge and accessibility of Bitcoin increase, so does its acceptance, both by individuals in countries with unstable financial systems and businesses globally.
“Bitcoin has gained acceptance as a store of value, and over time, it’s being recognized as a unit of account. So, even if grandpa doesn’t “get it,” Bitcoin is indeed considered a form of money.”
Throughout its existence spanning more than 15 years, Bitcoin has consistently demonstrated its decentralized nature and resilience to censorship. The principles governing Bitcoin have remained robust and effective over time.
We shouldn’t forget that Bitcoin is unreplicable. While the underlying code of Bitcoin is openly accessible for anyone to view and utilize, just like HTTP, TCP/IP, and other open protocol standards, the characteristics of its network extend beyond mere code. Even if anybody can copy the code, nobody can copy its history or the network of builders and entrepreneurs that have flocked to put their energy toward Bitcoin only.
Additionally, Bitcoin’s value is something that has been consistent throughout its existence, even though the USD-denominated price can be volatile and change often. This value reveals itself in layers and stages through time, and the world is slowly, but more and more every day, recognizing what that value is and why it is so important today.
While some financial professionals may focus on price targets and trading levels, spending time staring at screens all day, intelligent Bitcoin investors set themselves apart by exploring its true long-term value, opening their minds to the end game, and the far-reaching consequences of Bitcoin’s inherent properties.
If you understand the core principle of supply and demand behind what gives Bitcoin value, appreciate this value, and know what you own, you are poised to make better financial decisions. This also applies when the emotions of large price swings take away from other investors’ reasoning faculties, both to the upside and down.
Although there are some opportunistic times in life to sell, especially when a life-changing amount of money can improve your quality of life, we believe the ideal holding period for Bitcoin is FOREVER. Selling too much too early will be the sour regret of many would-be wealthy investors who allowed short-term thinking to make them sell a long-term asset too early in the adoption curve.
Are you ready to embrace this lasting investment and explore what this exciting journey holds? Abundant Mines is here to support you as you navigate the fascinating world of Bitcoin and Bitcoin mining.
Cryptocurrencies, such as Bitcoin, are digital assets stored electronically on a blockchain network, with basically no physical existence. But how can you access and transfer
Ever curious about the process behind the creation of new cryptocurrency coins and the security of blockchain transactions? Well, this is achieved through sophisticated, specially
Mining Technology & Hosting Made Easy.
Based in the U.S.A.