Why does Bitcoin have value?
When Bitcoin (BTC) first came into existence, there was so much speculation about where it derives its value. Governments and its critics even used this confusion to discourage people from investing in the cryptocurrency. Interestingly, governments were concerned that Bitcoin doesn’t have value and it’s made of thin air, forgetting that it’s also vague where fiat derives its value.
Luckily, Bitcoin supporters could not hear any of the allegations brought against the leading crypto. In their defense, they noted that BTC’s intrinsic value lies in the eyes of investors. Apart from this argument, let’s look at key facts as to why Bitcoin has value. In our examples, we shall compare the cryptocurrency with fiat and gold.
Features that support Bitcoin’s value
There are multiple reasons why why Bitcoin has value.
Scarcity and utility
These two principles form the basis of economics. Additionally, they determine demand and supply. Bitcoin is scarce because only 21 million BTC’s will ever grace the face of the earth. In contrast, gold and fiat have an infinite supply. For example, governments can just print more fiat, while gold reserves can decide to pile more gold. Although gold was thought to have a relatively fixed supply due to its mining difficulty, technological improvements are unearthing new ways to mine the precious metal. For Bitcoin, it’s 21 million. No more, no less.
This is the most outstanding reason why Bitcoin has value. The feature squarely beats fiat and gold, which are centralized. For context, BTC is distributed on thousands of computers, often called nodes, around the world. Surprisingly, there’s no single entity that guards or commands them. Therefore, this eliminates any single point of failure.
Fiat and gold, on the other hand, are controlled by a central authority. Centralized control leads to weak security and censorship.
Additionally, the distributed nature of BTC sees it’s transactions recorded on an immutable ledger. Consequently, there’s a proven and verifiable record that a transaction took place. This is in contrast with transactions involving gold and fiat. The system used to record transaction is not 100 percent tamper-proof.
Store of value
Gold has been fronted as a reliable and store of value. Unfortunately, when Bitcoin was born, it brought to life glaring cracks on this narrative. For example, gold and fiat can easily be confiscated by federal governments, they are not decentralized and can easily be counterfeited. Also, gold’s portability and divisibility are relatively low. Although Bitcoin’s price is volatile compared to gold, it appreciates much faster than gold. However, as more people invest in the coin, its price stabilizes, making it a more attractive store of value. People tend to buy Bitcoin just as an investment.
No third party
When paying for goods and services, it’s you and the merchant. No third parties involved. As such, the transaction fees are much lower compared to when paying using fiat. Gold is still a very rigid form of payment.
Unlike fiat, where only approved financial institutions are involved in its ecosystem, Bitcoin allows anyone, with the right equipment and without the need for authorization, to confirm transactions through a process called Bitcoin mining.
Durability is another reason why Bitcoin has value. Fiat and gold lack durability since they can be physically destroyed. Also, fiat, in particular, can degrade over time. Bitcoin, on the other hand, is digitally available. Therefore, it can never be physically destroyed and does not degrade over time. There are however a lot of Bitcoin lost, because people lost access to their wallet. You are still your own bank remember?
Bitcoin can easily be transported compared to gold and fiat. Below you can see a video of the transport of 200 tons of gold.
Compare that with a Bitcoin transportation with the same value.
Why does Bitcoin have value? From the above discussion, you have the right answer to this question. Luckily, Bitcoin’s value is bound to increase due to an increase in its adoption rate and a positive outlook from federal governments.
In addition, its value is likely to be hoisted by advancements in the cryptocurrency’s core network. For instance, its ability to power smart contracts and decentralized applications is likely to drive the platform’s usage. Consequently, more people interact with the coin increasing its liquidity and value.