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The value of a currency is based on its stability and how it has stood the test of time, including how it has performed in various economic climates. A currency must be relatively stable and function as intended. The value of most currencies came initially from their innate properties. The issue of ascribing a currency with a specific value has always been tricky, even more so with the advent of fiat currencies because their value is not attached to a commodity.
Humans have used various commodities throughout history to conduct economic activity, ranging from agricultural products to precious metals. The use of coins as currency first started in Mesopotamia c. 625 BCE. Despite this early introduction to using coinage, our agrarian-based ancestors conducted most economic activity using the barter system. Physical goods, mainly agricultural products like cocoa and wheat, were exchanged for goods that couldn’t be made on the farm. Eventually, humans began replacing the barter system with precious metals. These metals were minted by the state (government) into a state-issued coin. Coinage was much easier to transport over great distances than other commodities.
Programmers created cryptocurrency to combat the issue of fluctuating currency values. Part of the value of a cryptocurrency comes from the idea that it has its specific purposes and functions. They all have problems they were designed to solve.
Introduction
There are always options available for replacing any asset. Stevie Johnson, co-host of The Crypto Show, uses actors as an example of a replaceable asset. He says that there is always someone less experienced and cheaper available, but they may not be as good as the original. Bitcoin is another asset for which it is difficult to develop a genuine replica or alternative. Nick Sexton, co-host of The Crypto Show, points out that perfectly mimicking Bitcoin’s technology is impossible. Because Bitcoin has become something of a household name, it would be very tasking to develop another coin with as much value and trust as Bitcoin has already gathered.
Bitcoin was more or less the first cryptocurrency to be used on a large scale, so it has already covered a lot of ground, and like Nick said, “Just because everyone knows the name, just because a lot of people use Bitcoin, it has that brand.” Bitcoin has marquee value, just like big-name stars, who draw moviegoers to their films. Because Bitcoin has been around a while, people are beginning to have faith in it specifically and have more trust in the concept of cryptocurrency in general.
Blockchain Security
Understandably, because the concept of cryptocurrency is relatively new, people have had various concerns about trusting it as an alternative to traditional currency. However, the beauty of Bitcoin stems from blockchain security, which has made it virtually impossible for scammers to access information secured with the technology. Blockchain technology is one of the most efficient systems of security developed in recent times. Bitcoin value stems primarily from how secure and trustworthy blockchain technology is.
One of the theories surrounding blockchain technology and security is that the value of Bitcoin comes from the cost of making one Bitcoin. Bitcoin mining requires a large amount of electricity, and the costs associated with mining add up. Miners are paid for their efforts and expenses in Bitcoin. In a market where we have many producers trying to do the same thing, the profit and selling price of the product will depend on the overall cost. Blockchain technology is built using the Application-Specific Integrated Circuit (ASIC). ASICs are very powerful computer hardware used solely for Bitcoin mining. Nick Sexton said, “ASIC means a lot of math problems and no scammers. To date, it uses up 1% of the world’s electricity.”
This means that ASIC uses a complicated system of mathematics and electricity to keep the blockchain system secure. All of the efforts to make blockchain technology as secure as it currently is are part of what makes Bitcoin very valuable. It would be very challenging to develop another cryptocurrency with as much value as Bitcoin. Nick explained this by saying, “ASIC is like Brad Pitt’s acting. There’s a lot of other actors that can play the roles Brad Pitt plays, but there’s no one that can play it like Brad Pitt. That’s the same for Bitcoin. It’s what makes it different from other cryptocurrencies.”
Bitcoin Value
Understanding the value of blockchain technology makes it easier to understand why the value of Bitcoin is so high. The value obtained from the security of the technology increases the number of miners on the network. An increase in the number of miners leads to an increase in the value of the Bitcoin cryptocurrency itself. The value of Bitcoin lies primarily in its level of availability, i.e., scarcity. Bitcoin value operates on a similar premise to gold value. Gold is a product whose characteristic values are similar to the concept of cryptocurrency in that gold has a limited supply. The amount of Bitcoin that can be in circulation is limited to about 21 million. Hence, there can hardly ever be an excess amount of Bitcoin available on the market.
Bitcoin’s value operates on the idea of scarcity. Because the amount available for harvesting decreases, the demand for Bitcoin increases. Many investors (individuals, corporate establishments, etc.) are competing to share the profit that is sure to come from the value of the minimal supply of Bitcoin. Other cryptocurrencies have a long way to go to keep up with Bitcoin’s security technology and built-in supply scarcity.
The Bottom Line
When it comes to the value of Bitcoin, we know:
Even though Bitcoin’s utility has not been fully established yet, its value partly lies in the idea that it is a decentralized currency.
Another factor contributing to the value of Bitcoin is its limited supply.
Bitcoin’s scarcity means it will be practically impossible to cause inflation by producing excess amounts of the currency.
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