We cannot deny how over the years Bitcoin picked up momentum. Many of you who once thought investing in it was a bad idea must feel left out now. Everybody is talking about Bitcoin suddenly, its value even surpassed $65,000 in 2021. It is highly volatile, like one Elon Musk tweet on any cryptocurrency makes the prices of that currency rise or fall considerably.
Nobody knows who created it. As per a common understanding, a group or person that goes by the pseudonym Satoshi Nakamoto introduced the cryptocurrency concept to the world in 2008 amid the financial crisis.
The market cap of all cryptocurrencies traded today is more than $1 trillion, with Bitcoin being the most valuable cryptocurrency. This makes anyone wonder how or why cryptocurrency like Bitcoin (or any other) gets its value.
Let’s find out the answers to why Bitcoin has value.
Finding Out Why Bitcoin Has Value
Here are some reasons that give Bitcoin its value.
People Trust and Utility of Cryptocurrency
Before we dive in, understand one thing, the value of fiat money traded today comes with the value people put into it.
The fiat currency we use has value because of the goods and services we are willing to exchange for it. Fiat currency is generally not backed by any gold assets. These have value because people trust and accept the issuing government. People create the demand for currency, while the government controls the supply to regulate its value. When supply becomes excessive the money loses its value. So, the value of money comes from the demand and supply of money.
Cryptocurrency also is quite similar to this. It has no gold or silver backing. It is decentralized and entirely digital. People trust cryptocurrency and its system of blockchain technology. A decentralized system further adds credibility, as no human can manipulate its value or supply.
Moreover, Bitcoin is the oldest cryptocurrency, so people have more affinity and trust in it than others. It is like the gold of cryptocurrency.
Additionally, Cryptocurrency cannot be counterfeited like traditional currency as they operate on blockchain ledgers. Plus, cryptocurrency can transfer large amounts of money more conveniently, quickly, and transparently at less cost.
In fact, Bitcoin has slowly become the preferred mode of payment due to convenience, less transaction cost, and time.
All these factors add to people’s trust in cryptocurrencies, especially in Bitcoin. So, people’s perceived value of the usefulness and trust in the technology of Bitcoin and its decentralized system determine its value.
Government limits the supply of money to regulate the currency value and prevent its purchasing power to plummet. Anything that has an unlimited supply is bound to lose its value. Similarly, Bitcoin has a limited supply, and that supply cannot be increased in any way. Unlike traditional currencies, where monetary policies by the government alter the money supply. The cap for Bitcoin has been set at 21 million, and there is no way possible to mine more than this limit.
Though it is important to note that not all cryptocurrencies have finite supply like Bitcoin, as many have no supply limit. So, other factors also add value to any cryptocurrency besides their finite supply like their acceptability, utility, investor’s sentiments, and network effect.
- Bitcoin is easily transferrable; as discussed, it is easier and faster to transfer your cryptocurrency from one crypto wallet to another in minutes if you know their public keys.
- Bitcoin can be divided into 100 million units, called “satoshis”.
- Currently, 114 million people accept Bitcoin, and slowly its acceptability is growing. In no time, retail outlets everywhere will accept it. This acceptability adds more to its value.
- It is impossible to confiscate. Though you are at risk of cybercriminals accessing your private keys.
- The network effect of Bitcoin is also adding more to its value as the positive feedback loop of the currency incentivizes non-users to buy it, thus growing Bitcoin’s network and perceived value.
Final Thoughts | Why Does Any Cryptocurrency Have Value?
Trust is the major driving force behind the success of Bitcoin or other digital currencies. These digital currencies made waves during the economic crisis of 2008 when people lost all hope and trust in traditional banking and financial system and even governments. Over the years, people’s trust in the decentralized system of Bitcoin added more value to it.
It is worth noting that many disbelievers of cryptocurrency have exclaimed that using Bitcoin or other cryptocurrencies for doing any transaction is slow and even more expensive. Similarly, some believed it is not wise to invest your all money into crypto considering the swings in the market.
Let’s see how much things unfold for Cryptocurrencies, particularly for Bitcoin. For now, this industry is emerging, and with it, various opportunities blooming too.