Understanding the value of Bitcoin means recognizing its properties as useful. Bitcoins value is of subjective nature. To understand what this means, we must dig deep. We need to know how Bitcoin is created and why its properties contribute to its price. Every average person sees that Bitcoin has no commodity that it is backed by. There is no centralized authority that can inflate money as they wish. Bitcoin derives its value because it is of enormous importance to the free market right now. So, let me answer this question at the end for you. First, we need to understand why Bitcoin works.
What is Bitcoin mining?
Bitcoins embedded in its protocol are “set free” by the competitive and decentralized Bitcoin mining process. Miners are rewarded by the network protocol for hosting and processing transactions made in the network. They get some coins in return. Since Bitcoin has a limited supply, the protocol is set to produce a fixed rate of Bitcoin. This makes mining more competitive because the more miners enter the market and the lower the chances are to be the lucky one to get Bitcoin in return. This should incentivize miners to cut their operating costs to increase efficiency. Since Bitcoin gains in value, the promised return of value is not a metric number that gets bigger as the fiat currency system works. Bitcoin increases in value by not changing its metrics. This still enables miners to stay incentivized for a very long time. Bitcoin is created at a decreasing and fixed-rate. Bitcoin halving decreases the amount issued for mining the Bitcoin protocol. So, once all the 21 million Bitcoin have been mined, Bitcoin miners will continue hosting the network, and they will solely be incentivized by the transaction fee to continue hosting the network. This enables Bitcoin to continue existing for a long time.
What determines Bitcoins price?
Since Bitcoins supply is limited to 21 million, the sole factor determining Bitcoins price is demand. If demand shifts from Demand 1 to Demand 2, price shifts from price 1 to price 2, increasing in value. However, this works the same if demand falls, price falls too. Based on the limited supply concept, Bitcoin has no other factor than demand to determine its worth.
What properties make Bitcoin worth buying?
Bitcoin has the characteristic money needs. Bitcoin has the durability, portability, fungibility, scarcity, and divisibility, which gives it the properties of a medium of exchange not based on debt or on commodities. But what is it based on? What is Bitcoins core-value?
These questions are best answered by also answering the central question of this article. Bitcoins value is subjective and based on the subjective need for Bitcoin, which is represented in demand. As soon as people realize what their day-to-day currency used to be and when they compare it to Bitcoin, many will realize that Bitcoin offers all the properties that should be desired to have in a currency. Bitcoin has no value backed by a materialistic factor. Its sole determination for its value is demand. Demand picks up, Bitcoin will surely increase in price. If people find a better currency than Bitcoin, Bitcoins demand can and will drop to 0. Be sure to buy when demand picks up.
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Originally published at http://yvestalksbitcoin.com on January 20, 2021.