Why do Bitcoins Have Value?

By August 21, 2020August 24th, 2020No Comments
Why do Bitcoins Have Value?

Recently, former CEO of the insurance giant Prudential, George Ball in an interview with Reuters, said that bitcoin is an attractive long-term investment bet. He thinks that BTC is a safe haven for traders and investors.

It is important to know that Mr. Ball was previously a hater of bitcoin, cryptocurrencies and blockchain technology.

But then what made him change his heart? Why did a company like MicroStrategy buy $250 million worth of bitcoins last week?

Because these mainstream financial market bigwigs now believe that BTC has ‘concrete’ intrinsic value as opposed to traditional assets and markets.

And why’s that?

Because bitcoin is decentralized, durable, portable, fungible, scarce, divisible, and recognizable. And most importantly, the cryptocurrency’s design is based on the standard principles of mathematics.

Decentralized

Probably the most unique trait that imparts bitcoin its value is decentralization. By the very design of its protocol, Bitcoin operates over a public network of computers – blockchain.

This network of participants keeps Bitcoin running by ensuring that every member has access to the latest version of the blockchain i.e the longest chain.

No central authority, or a third party organization controls Bitcoin. And recent data suggests that over the last 5 years, bitcoin’s ownership has become much more decentralized.

This means that the concentration of entities holding large number of BTC has reduced and those holding small quantities has significantly increased. One of the reason why bitcoin’s value is increasing.

Percentage of Bitcoin Supply by Entities That Own ≤ 10 BTC
Percentage of Bitcoin Supply by Entities That Own ≤ 10 BTC, Source: Glassnode
Bitcoin Addresses Holding More Than $10 Worth BTC
Bitcoin Addresses Holding More Than $10 Worth BTC, Source: Coin Metrics

Durability

Bitcoins are inherently lines of code that exist as ledger entries on a public and distributed network. For the last 11 years, this network has been running 24X7X365 with 99.98 percent uptime.

Cryptography secures BTC transactions. It also makes them remarkably efficient. Also, Bitcoin’s code is available in a public repository on GitHub, which in turn is stored in the Arctic Code Vault. From what it looks, bitcoin is a pretty durable asset and can stand the tests of time.

Portability

There are a number of wallet options available where you can transfer your BTC holdings and move around freely, travel anywhere you like.

You can access your bitcoins from anywhere across the world. Because the money that you spend on investing in BTC actually gets you ownership of a section on the Bitcoin blockchain.

This means that BTC is free from a physical form or a place of storage.

Bitcoin is so portable that now it is not necessary to connect to the internet for conducting a BTC transaction.

State-of-the-art advancements by Bitcoin development companies like Blockstream have made it possible to make BTC transfers without the web. So much so, that transactions can happen from outer space as well!

Scarcity

Scarcity is the most characteristic attribute of bitcoin that makes it a valuable asset. There will only ever be 21 million bitcoins.

This is a feature that pre-programmed in the Bitcoin right from the start when the first block was mined. Mining or the process of producing new BTC requires proof-of-work.

Miners have to prove that their hardware is capable of verifying transactions on the bitcoin protocol amid rising mining difficulty. This is how they win BTC rewards for successfully verifying transactions and circulating them in the market.

Also, a technical feature even known as halving which reduces the bitcoin block reward every four years, ensures that powerful miners don’t empty the entire remaining supply.

Divisibility

Divisibility is another aspect that makes bitcoin a valuable asset. 1 BTC is divisible into 10 million small entities. Each entity is a satoshi.

This means that bitcoin’s limited supply cannot hinder its adoption. The world’s topmost cryptocurrency can find usage even in fractional quantities, up to the eighth decimal place!

With regards to investment too, it is not necessary to buy 1 whole BTC. You can buy a few satoshis or just a small portion of the entire bitcoin.

Fungibility

Similar to all other legitimate assets like gold, and state-backed currencies like the INR, every bitcoin can be exchanged for another.

Bitcoins irrespective of their history of ownership and usage still continue to hold value up until the individual satoshi.

Bitcoins/Satoshis emerging from one source are completely interchangeable with an equivalent number of bitcoins/satoshis emerging from some other source.

Recognizable

As of date bitcoin has garnered a lot of respect and credibility as an investable asset. Despite being criticized as a scam, and a Ponzi scheme, BTC has made a lot of money for investors especially the early entrants.

Also, it has accrued quite some support from conventional financial market and technology influencers like Federal Reserve chairman Jerome Powell, billionaire macro investor Paul Tudor Jones, Twitter founder, and CEO Jack Dorsey, etc.

These are some of the attributes that explain why bitcoins have value. Know any other feature, that imparts value to BTC? Share them with us in the comments below!

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