Satoshi Nakamoto invented Bitcoin in 2009, and ever since then, it has gradually become the king of cryptocurrencies. It is decentralized in nature, which means that the transaction, transfer, storage, and distribution of Bitcoin does not require a central bank or authority. Bitcoin does not have intrinsic value like traditional currency or stock, but it has a value because it is useful and has been adopted as a form of money globally. The value of Bitcoin can be measured by its ever-expanding base of start-ups, merchants, and users. However, the value of Bitcoin comes directly and only by the people who are willing to deal with Bitcoin as payment or in exchange for goods and services.
Why Does Bitcoin Have Value?
Bitcoin is not like traditional assets, but it has a value because of the following reasons.
1. Scarcity of supply
The developers of Bitcoin stipulated that there will be a cap on the Bitcoin supply at 21 million. The rate of release of Bitcoin gets halved every four years. This scarcity of supply helps in driving the value of Bitcoin higher, which in turn invites more and more investors and traders into the cryptocurrency market.
2. Divisibility
The cap on the supply of Bitcoin at 21 million is remarkably smaller than the supply of fiat currencies in circulation. But Bitcoin is highly divisible and can be expressed up to eight decimal points, which means that the smallest unit of Bitcoin is 0.00000001 BTC. This divisibility allows the distribution of quadrillion smallest units of Bitcoin throughout the world economy. It is this divisibility that ensures the scarcity of supply, which in turn lends value to Bitcoin.
3. Durability
To be of effective value, a currency has to be reasonably durable. If the currency gets easily destroyed or damaged, or if it degrades over time, then it will be of no value. Bitcoin is digital and, therefore, highly durable. The private key of the Bitcoin wallet and the associated hardware maintains the durability of Bitcoin and gives it its value.
4. Transportability
In order to be useful and of value, a currency has to be easily transferable between the parties to an economy, within the nation and between nations. Bitcoin can not only be easily transferred but can be done so in minutes, at a very low transaction fee, as per BTC News. It is this transportability that gives it value as a currency.
5. Counterfeitability
A currency should be difficult to be counterfeited for being effective and useful. Bitcoin is useful as money and possesses value because it is not easy to counterfeit. The advanced Blockchain Technology encrypts Bitcoin and ensures high security and complete authenticity of storage and transactions.
Why Does the Value of Bitcoin Vary?
The value of Bitcoin varies from one crypto exchange to another. Some of the reasons behind this variation are:
- The difference in trading volume makes the BTC value vary. The leading exchanges trade in large volumes, while the smaller exchanges don’t.
- The value varies because there is no established way to fix the price of Bitcoin. The price is completely based on the trading volume, and so the value varies.
- The transaction of Bitcoin across exchanges is inefficient and results in the variation of its value.
What Are the Factors That Make the BTC Fall and Rise?
The rise and fall of the price of Bitcoin can be attributed to the following factors
- The limited and fluctuating demand
The supply of Bitcoin is limited at 21 million, and so no matter what the degree of demand is, the supply will remain constant, thereby creating the market condition of fluctuating prices. When supply fails to meet the high demand for Bitcoin, the Bitcoin price spikes. And with more and more investors flocking into the crypto market, experts expect the Bitcoin price to keep rising.
- Media buzz that may be positive or negative
Statements made by governments and geopolitical events have an adverse effect on the price of Bitcoin. Negative headlines shock the investors and drive them out of the Bitcoin market. News of the bankruptcy of Mt Gox, the use of Bitcoin by drug-dealers, and general warnings issued by governments heavily discourage the investors and drive down the price of Bitcoin. The same media can make the price of Bitcoin soar by flashy headlines about Bitcoin billionaires and lucrative BTC Price Prediction.
- Governmental regulations about Bitcoin transactions
Unlike fiat currencies, governmental regulations do not have any impact on Bitcoin. While some countries are striving hard to regulate Bitcoin transactions, countries like Japan, the US, Canada, and the UK have already established regulatory laws. Japan’s government has legitimized Bitcoin transactions, and encourages its use, thereby contributing to its rising prices. Country like the UAE has imposed a ban on Bitcoin, thereby influencing the price to plummet.
How Does Bitcoin Get Its Value?
Bitcoin acquires its value from the factors mentioned below:
- The supply of and demand for Bitcoin in the cryptocurrency market.
- The cost of producing Bitcoin through Bitcoin mining
- The rewards that the Bitcoin miners receive for authenticating the transactions to the Bitcoin Blockchain
- The cryptocurrency exchanges where Bitcoin trading takes place
- The total number of competing cryptocurrencies
- The regulations that govern the buying and selling of Bitcoin
- The internal governance of Bitcoin
Conclusion
The price of Bitcoin is always fluctuating, and it is this volatility that drives the demand for Bitcoin and creates a selling pressure in the crypto market. A variety of factors influence the price of Bitcoin. However, regardless of the fluctuations, Bitcoin is highly valuable for the economy. It may not possess any intrinsic value, but it is of value and is as useful as fiat currencies.
