A long time ago, the US and many other countries were on the gold standard. The value of money was directly linked to the value of the gold that a paper bill represented. There was a finite amount of gold and so the value of the money was easily understood.
That has all changed now, of course with the value of money being a Bizantine and confusing thing to assess.
Then came Bitcoin and other cryptocurrencies. And the question is still being made, but this time about these coins. How do they have value? They’ve never been minted by a central bank or reserve. They aren’t backed by gold or other rare metals. They don’t even really have a paper equivalent.
In this article, we will cover some of the ways that cryptocurrency is valued to take some of the confusion and mystique away that surrounds it. If you have been wanting to buy btc but were put off by the vagueness of its value, then read on.
Scarcity
Just like gold, Bitcoin is a finite resource. There were only so many coins issued and that amount remains fixed.
The more people want to use and buy Bitcoin, the more the value increases. It’s simply a case of supply and demand.
What causes an increase in demand for a virtual currency that is not backed by anything? Well, there is a sort of infinite loop involved in which there is value because people value it and that creates more value and so on.
What it boils down to is that people want to use Bitcoin and everybody has their own reason for that. So as more people adopt it as a currency, the more it gains value. Since it is finite, it will also increase in value with this being a constant.
It also loses value when people sell it off, just as gold if there is a sudden glut on the market with people selling off their gold. If everybody were to sell their gold tomorrow, the price per ounce would plummet to near zero.
In the beginning when Bitcoin was gaining momentum as a viable currency, too many people compared it to playing roulette. Now it is seen as a parallel currency to fiat and does have value simply because people see the value in it.
Acceptance
For a while, it was definitely very strange that Bitcoin would have any value as there was almost know way you could spend it without changing it back to fiat.
It cost a Bitcoin holder 30,000 Bitcoins to order pizza in one of the first cases of using it to buy something. Though it is a technicality since he only sent the coins to another person with a wallet who then ordered the pizza for him. There was no place that accepted Bitcoins at that time.
Now that there are many ways to pay with Bitcoin, either online or at a POS, it has become very attractive to buy Bitcoin and use it as an actual currency. You can even go to an ATM and withdraw Bitcoin in some places.
Because of this, there is a value in using it and that determines how much it can be worth.
