Bitcoin provides an efficient way to transfer value over the internet. This digital currency has a decentralized network that controls it with clear rules. For this reason, Bitcoin presents an alternative to the fiat money that the central banks regulate.
Over recent years, people have been talking about pricing Bitcoin. Bitcoin price is wildly volatile. However, its adoption is increasing globally, and this also affects its value. Some people have even touted Bitcoin as an alternative to conventional money. But, why does this electronic currency has value?
What Gives Currencies Value
People use currency if it stores value. Simply put, people can reliably count on the money to maintain a relative bargain for a certain period without depreciating. Throughout history, many societies have used precious metals or commodities as payment methods. That's because they see these metals or commodities as having a stable value.
Initially, individuals moved around with cumbersome quantities of gold, cocoa, beans, and other early currency forms. However, societies eventually adopted minted currency. But, some notes remained usable for some time because they provided reliable value storage. That's because humans used precious metals with low depreciation risk and long shelf lives to make these currencies.
Today, minted currencies come in paper money form. Unfortunately, this money lacks the intrinsic value of the coins that humans made using precious metals. What's more, people use electronic currencies and payment methods. Some currencies are also representative, implying that people can exchange every note or coin for a specific commodity amount.
Most countries stopped using gold as their standards to curb gold supply concerns, and most currencies are now called fiat. Globally, governments issue fiat currency, which lacks the backing of any commodity. Instead, fiat currency depends on the faith that governments and individuals will accept the currency as a value representative.
But many societies and governments now see fiat currency as durable and unlikely to lose value or deteriorate over time. However, the introduction of Bitcoin as a traditional currency alternative has prompted some people to question its value. Here are attributes that give this electronic currency its value.
During its launch in 2009, Satoshi Nakamoto capped Bitcoin supply to 21 million tokens. Currently, Bitcoin supply is around 18 million, and its release rate decreases by almost half every four years. By 2022, Bitcoin supply will exceed 19 million. That's the supply protocol for Bitcoin that won't change.
Miners will produce the last Bitcoin around 2140. And this limited supply makes Bitcoin a scarce commodity, thereby driving its value higher. Essentially, Bitcoin's scarcity compares to that of gold or other precious metals.
Twenty-one million Bitcoins are smaller than most fiat currencies' circulation globally. But, people can divide Bitcoin by up to 8 decimal points. The smallest Bitcoin unit, known as Satoshi, equals 0.00000001. That means humans can distribute quadrillions of Satoshis units throughout the global economy. Essentially, a single Bitcoin unit has a higher divisibility degree than the United States dollar and other fiat currencies.
Blockchain technology is the central selling point of this electronic currency. Blockchain refers to a distributed ledger that is trustless and decentralized. That means no participant in the Bitcoin market has to trust the other for this system to function correctly. And this is due to the elaborate system of verifications and checks that are central to ledger maintenance and new Bitcoins introduction.
Unlike fiat notes that people can burn, tear or render unusable, Bitcoin doesn't exist in physical form. That means nobody can destroy it the way they can a dollar bill. And for this reason, Bitcoin is valuable and value storage. Today, people are purchasing Bitcoin on platforms like Bitcoin Champion and holding their tokens in digital wallets. That's because they trust the durability of this cryptocurrency and its ability to maintain value for years.
In addition to these factors, Bitcoin uses a decentralized ledger system that makes it difficult or almost impossible to counterfeit. Moreover, this virtual currency is easy to keep in a digital wallet and transfer to other users. And Bitcoin transactions are relatively cheap compared to those of fiat money. All these factors combined give Bitcoin value that may not correspond with most fiat currencies.