Bitcoin is the most famous cryptocurrency and the first one to get the attention of the wider public. It enjoys a large user base and can’t seem to stay out of the news. It has turned into something that attracts all kinds of investors and has become a part of many financial portfolios, big or small. With all this said, Bitcoin isn’t backed by any government or for that matter, a bank.
In fact, many countries are coming up with new rules and regulations to crack down on crypto trade. When taking all of this into account, one can’t help but ask the question ‘Why is bitcoin so valuable then?’.On a very basic level, the value of bitcoins comes from demand. It’s much like traditional fiat currencies in that way because it follows the laws of supply and demand. The inception of currencies is tied to a need for easier trading. Those who hold a specific currency can trade them for goods of their choice or sell goods and end up with a widely accepted tool with which they are able to buy virtually anything. The value of a U.
S dollar or Japanese Yen, which are typical fiat currencies, comes from the governments that put them into circulation. On the other hand, gold has an intrinsic value. When it comes to cryptocurrencies like Bitcoin, the situation is different. First of all, it isn’t accepted by everyone and there are certain restrictions on use.
Even though no government is backing Bitcoin, and even though it’s not valuable in a way that gold is, Bitcoin still has a high demand. It is most often employed to store value. The secret to Bitcoin’s success and incredible value lies in the fact that it has created a large network of people who receive and send payments with it. That is despite it lacking universal acceptance or backing behind it. Bitcoin also has some distinct advantages over traditional money.
Users consider it valuable because it is much better in certain situations. These situations include quick online transfers to any place on the planet where there’s internet. Moreover, there is a limit to how many bitcoins can be in circulation. After a set amount, no more bitcoins can be added to the pool. This means that there is no possibility of this cryptocurrency to be the subject of devaluation by way of inflation which is a vulnerability of traditional money. For some, the most important aspect to Bitcoin is its anonymity and the fact that it can’t be censored by financial institutions or network. But, this feature has also earned Bitcoin a negative reputation in the media as the currency of choice for illegal activity and criminal organizations.
In closing, Bitcoin’s value is derived from characteristics that make it unique and some that it shares with fiat currency.