Why Do Bitcoins Carry a Value?
Bitcoin has emerged out as an efficient mode of transfer of money via the internet. It has a decentralized network, and the rules that are guiding it are transparent to all. This comes out as an alternative to the fiat money that is controlled centrally by the banks. People are trying to understand how to determine the price of a Bitcoin and anticipate its future value if its market spreads any further.
But before understanding that, it’s better to take a step back and understand the factors that give value to any currency?
Why do currencies have a value?
A currency is considered useful if it provides a store of value, in other words, if it is able to sustain a relative value over the time period and not getting depreciated. Throughout history, in most societies, all the precious metals and all the commodities present in that society were used to make the payments. They considered them to have comparatively stable values.
To avoid the individuals carrying huge amounts of gold, beans, and any other form of old currency, societies turned out to create such minted currencies as an alternative option for making payments. Still, the most significant reason for creating minted currencies was to bring out modes of the store of value that are more reliable, i.e., having longer shelf life and very little risk of getting depreciated.
The modern era’s minted currencies are in the paper money form that does not the intrinsic values similar to the coins made of the precious metals. And nowadays, people have shifted to using electronic currencies and modes of payments.
Let’s look into the qualifications that make Bitcoin a successful cryptocurrency-
Scarcity
On the launch of Bitcoin in the year 2009, the developer of Bitcoin stipulated a cap in the protocol that the supply of this cryptocurrency will be limited to several 21million. The supply of Bitcoin into the market has already crossed several 18 million and is anticipated to reach the number of 19 million next year.
The approach used for the supply of bitcoin is diverse from that used for the supply of any other fiat currency in the market. The supply of fiat currencies is monitored by the central government of specific countries depending upon the economic requirements and factors, whereas the same is not in Bitcoin.
As there can be seen the availability of generation of more and more bitcoins, this has encouraged the mining community. It is anticipated that these can keep on changing as the limit of 21 million will be approaching. But it has been observed that the schedule of mining of the last Bitcoin is not to happen anytime before reaching the year 2140. This scarcity is the basis that drives the rise in the value of a currency, as can be observed in other valuable metals similar to gold.
Divisibility
As the number of 21 million is much lower than any number of currencies circulated across the world. Fortunately, Bitcoin can be divided into eight decimal points. One unit is known as a “Satoshi” that is the smallest unit of a Bitcoin. One Satoshi is equal to 0.00000001 Bitcoin. This offers a quadrillion unit of Satoshis that can be offered to individuals globally. The extremely divisible number of one Bitcoin makes it scarce yet available to many people to carry out their transactions.
Durability
The major disadvantage of a fiat currency is its durability. Currency notes, cheques are prone to risks of getting torn, burnt, and being rendered unusable ones at a point in time, whereas digital currencies are not prone to such physical risks.
This is another significant reason for making Bitcoin through bitcoin-society.io a tremendously valuable cryptocurrency. This cannot be damaged in a way one can damage a dollar bill. One can lose a Bitcoin-only if they lose their public or private key to their wallet. Still, Bitcoin is not going to be lost, and its existence will still be there in the records maintained on the Blockchain network.