Why Is Bitcoin Valuable? What Makes Bitcoin Sound Money?

why bitcoin is valuable

Bitcoin as one of the leading cryptocurrencies that is a strong store of value. It performs above and beyond through its secure network and immutability aspects of the Bitcoin blockchain. Bitcoin offers an efficient means to transfer money over the internet through a decentralized network. It is a perfect alternative to central bank-controlled fiat. We can use Bitcoin to fulfill smart contracts thus doing away with intermediaries. Moreover, digital currencies are doing away with fraudulent activities surrounding internet transactions. This article focuses on why Bitcoin is valuable in the 21st century.

 

Brief History About Money

Back in the 1850s, the Neolithic farmers used to exchange their grains for other grains, an animal for an animal or animal with trade. Barter trade as many people refer to it may sound lovely but it is quite inefficient.

I can describe this form of trade as coincidental as a trade can only take place if both parties want the exact item the other person offers. Come to think about it! What if I want maize grains while you have mango fruits. The barter economy is undetermined and time-consuming. For you to have what you want, you have to wait to be successful.

I must attest that currency emerged from barter hence we can say that barter is the base case. In every society, you will realize that there is a commodity in high demand throughout the economy. It might be wool, fruits, or cows. Soon enough, it starts dominating trade as a form of money. We call it ‘commodity money’. In most societies, commodity money is not scalable which is why they are different in early societies.

According to history, the first observed proto-money was in form of collectibles. These are small identical items like beads and shells. Collectibles are easy to count; store and you can appraise their value. That is why they were popular forms of money in early societies.

In the 21st century, we are enjoying the use of currency as a medium of exchange. Due to advancing technology, you can now make online payments. In the US, consumers prefer credit cards as well as bankcards. Other methods include eWallets and PayPal among others. In the recent past, the landscape is evolving following the arrival of cryptocurrencies such as Bitcoin.

 

Drawbacks Of Fiat Currency

Fiat money is a currency that lacks basic value and acts as a legal tender by government regulation. In the past, trade depended on physical commodities including gold and silver. Fiat currency is focused on the credit of the economy.

We can determine its value through supply and demand. Fiat currency acts as an alternative to representative money as well as commodity money. Commodity money comes in precious metals such as silver and gold while representative money acts as the claim on a commodity that you can redeem. So let us now look into some of the disadvantages of fiat currency

Disadvantages Of Fiat Currency

  • Governments are unable to ‘print’ up money whenever they feel like it. They can seize your assets in fiat currency, especially when you refuse to pay taxes. In this case, the government will inflate currency the prices of some items but they will rush to buy the items before the prices shoot.
  • Fiat currency can easily drop to zero value. Following the fact that a paper lacks value, soon or later, fiat currency loses its value. For instance, when you were saving money for retirement, when the time comes, you will realize that the purchasing power of most items in the market has decreased. This will force you to invest whether you have experience or not. Once the currency drops to zero value, this would ruin the economy.
  • Fiat currency loses value over time

Every year, the central bank prints new money to replace all the bills damaged or lost. Keep in mind that they will always print more than what is they should. This will expand the available currency constantly. We all know how humans can be greedy and fallible at the time hence there is no guarantee that they will print only what is needed. That is why Bitcoin is valuable as we do not print them but mine them.

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Why Bitcoin Is Valuable?

Apart from being a store of wealth, money needs to have various qualities that make it sound-money. Some of those qualities are scarcity, divisibility, portability, fungibility, durability, decentralization, accessibility, unforfeitability, programmability, and a store of value.

Let us look into these qualities

Bitcoin Scarcity

The only way you can maintain currency’s value is through its supply. If the supply is too large, the prices of goods are likely to go high thus leading to economic collapse. If the supply is too small, this affects the economy as well.

In the case of fiat currencies, most governments from across the world print money in the name of controlling scarcity. This is because they operate with a preset amount of inflation that according to them drives the value of fiat currency down. In the US, the inflation rate has historically hovered around 2.4%

Bitcoin is ahead of this game as it offers a predictable supply rate that changes from time to time through Bitcoin halving. But, people know ahead of time that this is what is going to happen with Bitcoin mining until the year 2140, when all Bitcoins will be mined completely. The fixed supply of Bitcoin around 21M is the driver of why Bitcoin is valuable. Bitcoin’s scarcity through fixed supply creates value as a rare asset.

Divisibility Of Bitcoin

Bitcoin is divisible making it easy to reflect the value of every good as well as service that is available throughout the economy.

Bitcoin Portability

A good currency makes it easy to transfer between participants in an economy making it useful. Bitcoin is transferable from one party to another. We can also use it to fulfill smart contracts thus making transactions successful.

Fungibility Of Bitcoin

All Bitcoins have the same value, unlike fiat currency that varies according to a specific country. It does not matter who owns or their history. This is a crucial aspect to the success of a decentralized network.

Bitcoin Durability

Bitcoin is durable, unlike fiat currency that easily damages. Coins and notes degrade over time until you cannot use them anymore.

Bitcoin Decentralization

Bitcoin is a decentralized alternative to government money such as fiat cash that can be printed anytime. The probability of Bitcoin failing is quite low. We can say that this coin is democratic, resilient as well efficient.

Accessibility Aspects Of Bitcoin

Bitcoin is efficient when it comes to transferring funds. It allows businesses as well as individuals to send as well as receive payments anywhere anytime. Moreover, Bitcoin is available in many countries across the world but remains out of reach for most payment systems.

Bitcoin Unforfeitability

Bitcoin is durable and difficult to counterfeit that is why it is effective. No malicious party can succeed in disrupting this currency system by faking the bills. Such cases normally lead to negativity in the currency’s value. That is why crypto is valuable. 

Programmable Money Via Bitcoin

Bitcoin allows you to keep all the transactional records by encrypting them on a blockchain. Even though this encourages transparency as you can access this information publicly, it is secure. Nobody can share your information with a third party without your permission.

Bitcoin Store Of Value

Bitcoin offers a decentralized network that ensures security for its holders. Did you know that you could use it to hold as well as transfer value? We can compare it to a store of value such as gold that is why Bitcoin is worth more money.

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Bitcoin Halving – Future Demand, Current Value

Did you know that until to-date, Nakamoto has never explained the reasons behind the halving? Quite a several people think that halving was mainly to distribute the coins fast as a way of attracting more people to join the network. They understood why Bitcoin mining is valuable. Hence, they needed more people to mine new blocks. In case there is halving, investors are likely to hold Bitcoin and avoid using it as a medium of exchange.

The halving event affects bitcoin price action positively since there is more cost to secure the network and the reward is cut into half. So, miner compensation can only happen through the Bitcoin price increase. With the latest halving, the newly mined bitcoin is likely to fall from 1800 to 900 bitcoins per day. This will also reduce the daily revenue of miners by half. Until May 2020, miners were getting 12.5 BTC per block reward. Since the last Bitcoin halving, the reward is cut into half to just 6.25 BTC reward per block.

A decrease in the rate of Bitcoin will tighten supply then increasing its value in the future. Predictions have it that after the fourth halving, Bitcoin is likely to achieve a growth of 270% come 2024.

 

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Conclusion – Why Bitcoin Is Valuable?

As we have seen in the article, it is evident Bitcoin is an efficient medium of exchange in the 21st century. A good form of money that can readily hold value is adoption and trust amongst other qualities mentioned above. After reading this article, you will understand all the answers that answer why cryptocurrency is valuable. Bitcoin moves us forward with standardizing money and creating equal access opportunity.

If you want to learn the best US Cryptocurrency Exchanges, head over there to the other article where we discuss in detail. Learn how to day trade Bitcoin and also how to invest in Bitcoin for the long term.

If you are looking for advanced topics on bitcoin, you may want to build your own bitcoin trading bot. If you don’t have the technical expertise to create your own, look at our bitcoin trading bot review.

According to why is bitcoin valuable Reddit, many people declare that it is valuable. Bitcoin ledger does not dilute due to inflammation. Even though everyone can create a cryptocurrency, it is impossible to give it value as many investors opt for scares as well as common ledger such as Bitcoin. Can Bitcoin become a viable replacement for fiat currencies? In my opinion, yes. But, leave your thoughts in comments and I’ll be happy to respond.

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