Bitcoin is still quite new and very poorly understood, so it’s OK if you’re still not sure why this Magic Internet Money even has value at all. If you look deeper, it becomes clear that asking about Bitcoin’s value is really asking about the value of money in general.
Why does something like the US Dollar – which can have trillions of it printed at the push of a button – have value? Usually when there’s trillions of something it becomes super cheap. To understand why we have to learn about the characteristics of Bitcoin and how they turn it into the best money humanity has ever seen.
Contents
Why Does Bitcoin Have Value?
To cut straight to the point, Bitcoin has value not because it’s “crypto” or new or has Blockchain or any other thing anyone says. It has value because many millions of people around the world find it useful and actively use it.
If no one found Bitcoin useful and everyone stopped using it because it had no use, then the value of Bitcoin would go to zero. As the Market Cap of Bitcoin keeps going up over the years however, it seems people do actually find it useful and are indeed using it.
So the next logical question is why are people moving from using existing fiat money, such as USD, EUR, YEN etc, to using Bitcoin as their money? The reason is because it ranks spectacularly highly in all but one of the six characteristics of money.
The Six Characteristics Of Money
It’s been known for a long time now (far longer than Bitcoin has been around) that money as a technology has six main characteristics:
- Scarcity: Limited in supply relative to other things
- Durability: Can be used many times and still function, stands the test of time
- Acceptability: Is used and accepted by many other people
- Portability: Easily moved across long distances
- Divisibility: Easy to divide into smaller units to make trading more practical
- Fungibility: One unit is exactly the same as another unit
You see, you can choose anything to be “money” like a rock or a cow. Whether or not it’s considered to be a good type of money, and then valuable, depends on how well it hits all the characteristics.
| Fiat | Bitcoin | Gold | |
|---|---|---|---|
| Scarcity | Low | High | Medium |
| Durability | Medium | High | High |
| Acceptability | High | Medium | Low |
| Portability | Medium | High | Low |
| Divisibility | Medium | High | Low |
| Fungibility | High | High | High |
As you can see, it’s a bit of a blood bath!
Gold is durable, fungible and most importantly pretty scarce. It’s not very widely accepted (a lot of people know what gold is but would never actually accept it as payment day to day), divisible or portable. $1,000,000 in gold weights about 17 kg.
Fiat money such as the USD is accepted far and wide, fungible, relatively durable, portable ($1,000,000 in $100 bills weights about 10 kg) and divisible but has the key flaw of not being scare at all. The fed can and has printed trillions of it.
Then comes Bitcoin. It’s more scarce than even gold (absolute fixed supply of 21 million vs slowly growing supply), infinitely durable, infinitely portable, easily divisible and fungible. The only characteristic it falls down on is acceptability as not everyone accepts it… yet.
This exceedingly good report card is what makes Bitcoin the best money the world has ever seen and as such, valuable. Never before has human kind had such a perfect money available, let alone available to everyone, equally, all over the globe! It’s no wonder why Bitcoin is becoming more and more valuable as more and more people discover it!
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The Four Breakthrough Characteristics Of Bitcoin
So Bitcoin is a fantastic money, which means more and more people want to use it, which gives it more and more value. But. Scoring well on those characteristics isn’t all Bitcoin has to offer, it goes even further!
Thanks to how Bitcoin was designed, built and run it brings a number of new, breakthrough characteristics that no other money on Earth has been able to bring before. These additional characteristics are at the heart of what really defines Bitcoin and what makes it incredibly unique and special.
Decentralization And Consensus
Decentralized: All Bitcoin transactions are saved to the Blockchain (a database if you will). A copy of this blockchain is voluntarily stored on tens of thousands of computers called “nodes” all across the world. With so many copies in so many places (even in space!) it’s one of the most distributed and decentralized networks ever created.
Consensus: No one owns, runs or controls Bitcoin. Instead the system is changed using bottom up agreement called consensus. From Bitcoin Miners to node operators to developers, all are free to accept or reject any new proposal.
Trust Minimization And Verifiability
Peer-To-Peer: There are no trusted third parties such as banks or government institutions involved during a Bitcoin transaction. The transaction goes directly from one person to the other. This reduces counter party risks, decreases fees, speeds things up and greatly increases privacy.
Verifiable: While other monies like a $100 bill or chunk of gold can be hard to verify unless you’re a trained expert, bitcoins are not only easy for anyone to verify using a free/cheap Bitcoin Full Node, but the process is entirely automatic and free meaning it can be set as the default for everyone, for every transaction.
Free, Open And Permissionless
Always Open: Bitcoin, unlike traditional financial markets or banks, never sleeps. You can buy, sell, send or receive it globally, 24/7/365. Due to its distributed nature, it’s virtually impossible for the network to go down and has had 100% up-time since 2013.
Permissionless: It can be used without having to ask anyone for permission. You don’t need to created an account, sign up to a company or tell anyone who you are to use it. This is extremely important for billions of people who are not allowed or able to register with legacy financial institutions.
Censorship Resistance And Pseudonymous
Censorship Resistant: As Bitcoin doesn’t require any trusted third parties and can be sent and received simply via software that’s run on any computer, it’s incredibly difficult for anyone to “ban” or stop it. To stop a Bitcoin transaction a government effectively has to stop the Internet or go into an individuals home using physical force making it highly resistant to censorship.
Pseudo-Anonymous: You do not need to identify yourself to use Bitcoin. There are no names recorded during a transaction, instead they are tied to an address that is essentially just a bunch of randomly generated letters and numbers. It should be noted that it’s still possible to link these generated addresses to real life names if care is not taken to protect your Bitcoin Privacy
FAQ
What are the characteristics of cryptocurrency?
Cryptocurrencies all have the following core attributes in common:
– They are digital only, with no physical real world presence
– They are secured using cryptography to prevent fraud
– They are not issues by a central authority such as a central bank
– They use distributed ledger technology, typically called a blockchain
Read more: What’s The Difference Between Bitcoin And Cryptocurrency?
Why Is Bitcoin So Expensive?
The price of Bitcoin, as denominated in other fiat currencies such as USD, fluctuates due to many known and unknown reasons. Whether it’s due to a large entity buying or selling a lot of bitcoins, announcements of good or bad news for the overall economy or Bitcoin network, or simply just another Crypto Exchange Bankruptcy it all impacts the price.
Is Bitcoin Money?
Yes. Bitcoin Is Real Money and can be exchanged in millions of places all over the planet. As it doesn’t use the legacy financial world, it can also be exchanged in many places most fiat currencies like the USD can’t too. To get an idea of how much of your native fiat currency (“real money”) someone will pay for bitcoins, we recommend CoinGecko.com.
who created bitcoin?
An anonymous person or group called Satoshi Nakamoto released the famous Bitcoin Whitepaper in October of 2008. On the 3rd of January, 2009 the first Bitcoin block was mined, called the “genesis block” or Block 0.
Is Bitcoin Divisible?
Yes. Bitcoins have the currency symbol ₿ in front of them and are highly divisible. The smallest value that the Bitcoin network supports sending is the Satoshi, one hundred-millionth (0.000 000 01) of a Bitcoin.
