Bitcoin is a digital currency and is considered an alternative to fiat money controlled by a central bank. However, fiat money is valuable because it’s issued by a specific monetary authority and used in the economy. For more information, you can click this link .
The Bitcoin network is decentralized, so the cryptocurrency isn’t used as often in retail transactions.
One might argue that Bitcoin’s value is like that for precious metals. There is a limited quantity, and they’re only used in certain cases. Precious metals are used for industrial applications. However, the underlying technology of Bitcoin is the blockchain. It has applications across several financial services industries.
Traditional currencies – Why they’re valuable?
Something must have six key attributes to be a currency:
- Resistance to counterfeiting
These things help the currency be widely used in the economy and can limit monetary inflation.
Assigning worth to a currency is up for debate. The value comes from the intrinsic physical properties. For gold, that included purity content and luster.
Government-issued currency is often found as paper money, so it’s not as scarce as precious metals or cocoa beans. In fact, the value for paper money used to be determined by how much gold-backed it. Still, the value of currency changed in the 17th century.
Why Bitcoin has value
Bitcoin isn’t backed by any government authority, and it doesn’t have an intermediary banking system to disperse funds. It’s a decentralized network with independent nodes that are responsible for approving transactions on the Bitcoin network.
Still, cryptocurrency displays attributes of the fiat currency system. It can’t be counterfeited and is scarce. The only way to create a fake Bitcoin is by executing a “double spend.” The user transfers the same Bitcoin in multiple transactions to create a duplicate record.
The only reason Bitcoin hasn’t become the economic currency of choice is that people don’t use it for retail transactions. There are only 21 million Bitcoins out there, so it’s considered a commodity.
Therefore, the value of Bitcoin focuses on scarcity. The supply diminishes with time, so the demand for it increases. Investors want a slice of that profit pie to trade the limited supply.
You may wonder how to trade Bitcoin. Most people buy one or part of a Bitcoin and store it electronically. However, online trading through Bitcoin Era makes it easy to trade CFDs without owning anything in a digital wallet from the blockchain.
Still, Bitcoin has more limited utility and is similar to gold. Most of the applications are industrial. The blockchain is used as the primary payment system. Typically, people like it because the transactions are faster, it’s more secure, and the government isn’t involved.
Right now, some countries feel that Bitcoin technology is sure to evolve to become a medium for routine transactions. In fact, some merchants allow people to use Bitcoin to buy goods and services. However, it’s not mainstream currently.
Why is it hard to value Bitcoin?
One big issue is the store of value. This depends on how well something works as a form of exchange. Right now, Bitcoin doesn’t tick that box, so it’s not useful as the store of value.
With that, Bitcoin doesn’t have intrinsic value. It depends on the trader and how they think the market might behave. Therefore, there could be many inconsistencies with Bitcoin’s value. One price might be something different in a few seconds.
Overall, Bitcoin is seen as an investment opportunity. You don’t go to the store and pay with gold bars, and you don’t use Bitcoins either (for the most part). Instead, you buy gold itself and store it in a safe location (depository or safety deposit box). If traditional currency fails, gold and Bitcoin (along with other Altcoins) might be the wave of the future.