Everyone’s talking about Bitcoin these days. And that happens for more than a decade. Some people think it’s inherently worthless and will eventually come crashing down; some think it’s the future of money.
The idea is to avoid the centralized banking and finance working, and give the people financial freedom, to do what they want with their money. That’s how the blockchain appeared. The cryptocurrencies, in this case, BTC, are a reward the miner gets after successfully resolving cryptographic tasks through the blockchain. Once the coins are mined, the transaction is sealed in a block. Every future transaction is ensuring no one can come back to the particular block, to reverse the transaction.
All these technical aspects make BTC one of the most anticipated and still most popular cryptocurrencies in the world.
So what is Bitcoin, exactly? And more importantly, why does it hold value?
What Is Bitcoin?
Bitcoin is a digital currency and a payment system invented by a person or persons known by the name Satoshi Nakamoto, however, the exact identity of whoever was behind this name is unknown. Bitcoin is a pseudonymous, decentralized electronic currency. Satoshi created it to function similarly to physical commodity money, like precious metals.
Bitcoin lets you do the peer-to-peer transfer of value online without the need for third-party intermediaries. This characteristic makes Bitcoin an attractive alternative to traditional fiat currencies, often subject to central bank manipulation and government control.
The Bitcoin network is powered by a decentralized network of nodes that verify and record all transactions on the blockchain.
We can create bitcoin through a process known as mining. Computer users solve complex mathematical problems to add blocks of transactions to the bitcoin network.
The process can be automated, by using machines known as rigs. Also, in order to mine Bitcoins, you need to buy a piece of expensive equipment, with an advanced cooling system. Mining consumes a lot of electrical energy, so get ready for expensive electricity bills. Experienced miners say that the profit will make up for these expenses, but who knows…?
Why does Bitcoin Hold Value?
Bitcoin has value for several reasons. Firstly, Bitcoin is deflationary. This means that the number of bitcoins in circulation will continue to decrease over time until there is nobody to mine them anymore. They are scarce. The limited supply of bitcoin is set to 21 million coins. As more and more people use them, fewer will be in circulation. This makes them similar to gold, which is also scarce, unlike government-issued currencies, which are constantly being devalued by inflationary monetary policy.
That doesn’t mean they will expire, but simply, at some point, there won’t be any coins to mine. But, the whole quantity of 21 million coins will still circulate through trading services and exchanges too.
Secondly, Bitcoin’s value takes its origin from its usefulness as a payment system. The payment system is peer-to-peer, so it doesn’t require a third party to process or approve transactions. The transaction fees are much lower, you can transact anonymously, and transactions are processed quickly.
- Bitcoins are useful – They can be used to purchase services online and can also be traded for other currencies. People can sell their services, and request to be paid in BTC too. You can even exchange them for fiat currencies in some countries.
- Bitcoin transactions are secure – They use cryptography to protect against counterfeiting and ensure that only the bitcoin owner can spend it. As we explained, every transaction is sealed in a block, and as new blocks are created, yours is getting verified a few times, until it’s practically irreversible.
- Bitcoins are decentralized – No authority controls their worth. This makes them different from fiat currencies, which are subject to the whims of central banks and governments. That means BTC is a great option for those who want financial independence.
- Bitcoin is much less susceptible to inflation and deflation – When compared to government-issued currencies, bitcoin is much less likely to take a hit when it comes to inflation and deflation. Yes, bitcoin is volatile, but it cannot be devalued. This ensures that the value of a bitcoin will remain relatively stable over time compared to fiat currencies like the dollar, which are constantly being devalued by inflationary monetary policies.
Moreover, there’s demand – the driving force behind almost all economic activity. As long as people believe that bitcoin will continue to be valuable and useful, they are more than happy to pay for it now and trade it later for things they want. This gives bitcoin a strong demand, which in turn gives it value. For anyone interested in becoming involved in the bitcoin market, only broker easyMarkets is a great resource when it comes to learning more about what bitcoin is, how it works and how to trade it.
Times of crisis
Surely, there were a few critical cases of huge price drops. We all remember the beginning of the pandemic, but after things were set, the price started to grow. In November 2021 it peaked at a price of around $68,000, which was a short period of luck for those who had some BTC saved. Now, in May 2022, the price is lower than $30,000 per coin, but it’s still a nice value.
Right now, the whole market is facing hard times, but we are sure there will be a recovery soon.
Even now, the status of crypto gold is not in question. People still love BTC, and almost every investor wants to grab even a fraction of it.
Another interesting thing about Bitcoin, and the whole crypto market is that it can recover faster than we can imagine, but it may collapse the same way too. It’s volatile and unpredictable, and many people still avoid BTC or any other currency. And that’s normal because we can’t expect that everyone will want to become a part of this market. That makes it even more valuable for those who know how to properly appreciate it.
Bitcoin is the most important and most commonly used cryptocurrency in the world, as it was the first digital currency to gain widespread adoption. It has been increasingly used by people worldwide, and its value continues to rise. With its deflationary nature, secure transactions, and decentralized control structure, bitcoin represents a major shift in thinking about money and value.
There would be both good and bad days, but we all hope that the world will finally realize how good financial independence can be. That will lead to wider recognition, and more countries will accept it as a regular payment method, just like the fiat currencies.