🔎 [Crypto blog #1] What gives Bitcoin and other cryptocurrencies value?

🔎 [Crypto blog #1] What gives Bitcoin and other cryptocurrencies value?

(3 min read)

We all have a fair understanding of what value means. We transact and interact with each other daily trading goods and services to get by in our daily lives. A fair question concerning Bitcoin is what determines its value and how its value is established and determined.

A few days ago, I had a little difficulty explaining my uncle what gives Bitcoin its value and how its determined by exchanges. He couldn’t wrap his mind around the fact that a single Bitcoin has greater value than gold. “How can a virtual currency be more valuable than something real?” he asked. In addition, he argued there were numerous other digital currencies in the past that failed. I gave numerous arguments about how the value of Bitcoin is determined, starting off with the simple ones.

This is how I explained her what gives Bitcoin value and how it’s determined. The biggest reason anything has value is supply and demand. But what determines demand? To answer this question, one needs to ask what gives value to anything? Gold for instance has value over history and trust, while money has value as it is endorsed by governments and debt. Lets take a look at what Bitcoin has to offer.

1. Bitcoin has a maximum cap:

To first understand the value of Bitcoin we need to understand why precious metals like gold, silver and diamonds are valuable. These metals gained value over centuries for being highly demanded by the rich to make jewelry and trade assets and goods. But the biggest reason: there is a hard cap for these metals, there will never be more gold than there can be mined. While the total population is growing so does demand and the price. The same thing applies for Bitcoins. After all the Bitcoins are mined, there will be a total of 21 million.

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2. Bitcoin is digital and decentralized:

People who transact with Bitcoin have the liberty to exchange value without intermediaries which translate in lower transaction fees, transaction time, privacy, ownership and security. In other words, you no longer have to trust a third party with your personal information and be dependent on that party.

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3. Double spending resolved:

Bitcoin innovation is valuable for having solved the double-spending problem encountered in digital asset transfer. The blockchain technology is a shared public ledger maintained to allow peer-to-peer transfer of data and valuables within the network without duplications or so called double spending. When a user tries to double spend the system will reject the latest transaction as a duplicate. This innovation sets Bitcoin apart from all previous attempts at creating digital currencies.

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4. Censorship-resistant:

Because Bitcoin is built on a decentralized peer to peer distributed network, meaning there is no central server – it cannot be shut down. Nobody can currently change earlier block transactions or manipulate the system for their own gains, making Bitcoin a disruptive technology for current mandatory currencies.

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5. Social value:

The social implication of the way Bitcoin revolutionizes the payment and transaction system is by eliminating the need for trust. In other words, Blockchain technology eliminates the need for trust because every transaction is backed on the decentralized distributed ledger. Therefore, no party or user needs to trust the other party it transacts with as long as the transaction is met. This concept has brought blockchain contracts to life which today is known as the smart contract. For example, this concept of trust less business can be met in every industry you can think of. Think of the food industry, cloth industry, jewelry, electronics and many more can be tracked to the origin and way of manufacturing without needing to trust the brand or company.

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6. Secured personal value:

Bitcoins in storage can be secured by different means, including passwords, biometric readers and multiple signature transactions. There is no chance of forgery as long as your private key is secured.

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7. Open source protocol:

Bitcoin is a free and open source software under the MIT license. The protocol is in its infancy which encourages contributors to collaborate on solving development issues. This allows the protocol to be updated much faster than other platforms and protocols. When and if bugs and security issues are found they are shared with the entire GitHub community which are thousands of programmers all over the world. Most Bitcoin core developers are unpaid volunteers who maintain and manage the source code.

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8. Community and movement:

Bitcoin has a community which is borderless, it doesn’t matter what your background, color, religion or incentives are – using the system results in a movement much greater than just revolutionizing the payments and banking system. Bitcoin has a growing community that is very supportive and open to newcomers. The bigger players in Bitcoin that entered early on were the ones who had a vision of a future without centralized banks, governments and institutions. This was just a vision but it’s turning into reality as the years go by.

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9 Bitcoin is highly divisible:

A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. If necessary, the protocol and related software can be modified to handle even smaller amounts.

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10. The first blockchain cryptocurrency:

Bitcoin gets allot of credit for being the first Blockchain cryptocurrency. It's the most known one out there. This doesn't mean it will always stay the biggest as dominance in the market cap, but it will always be the first one.

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