If you ask anyone on the street have they heard about Bitcoin?
99% of them will say Yes (!)
Bitcoin is famous now. It doesn’t have the branding problem, but if you ask the same people, why is Bitcoin valuable?
Chances are, very few will be able to give a convincing answer.
That’s because there is lack of education and the reason that you are also reading this article now verifies that the fact that you too are trying to find an answer to the question: what gives value to Bitcoin?
Nothing wrong about it and even at TheMoneyMongers we try to help you to find the right answers to such questions. After all, we believe in arousing doubts and clarifying the purpose.
That’s why today I want to share my insights on what makes Bitcoin valuable. So without further addon let’s get straight to the point:
What Makes Bitcoin Valuable or Why Bitcoin Is Valuable [7 Reasons]
Bitcoin is the most scarce thing the world has ever seen. There will be only 21 million bitcoins out which 4 million are estimated to be lost permanently, and the rest 4 million are yet to be mined.
This leaves the effective supply as of now to 13 million coins. Out of this also around 8-10 million coins are with the HODLer who rarely sell their stack leaving only 3-5 million coins available in the open market to be bought and sold.
Do you think the world will take time to realize this fact? I think NO.
Actually, it has already started realizing. The millennial generation, which is the biggest of all the chunks regards Bitcoin rarer than Gold.
You can mine or find more Gold in oceans or space, but there is no place in the universe where you will find more bitcoins, no matter what you do !!
This itself is amazing to absorb, and humans tend to be drawn to the scarce things. That’s why, as per the demand and supply economics, bitcoins have gained the value they have.
And as more people realize what I said above, the same will become the reason for even greater value which Bitcoin is almost guaranteed to achieve.
#2. Openness & Neutrality
Bitcoin is the most open system designed by humans.
At its core, it is a protocol over the existing layer of the internet, which is open source. It is open for anyone to join the network and transact on it.
Bitcoin doesn’t care whether you are men or women at best it also doesn’t care whether you are human or a machine or a software algorithm.
How cool isn’t it?
Anyone ready to abide by the rules of the protocol can join the Bitcoin network and transact, mine as well as maintain the system.
There are no SWIFT banking rules to follow, and there is no KYC to be done. The protocol itself doesn’t want any of these but of course, in these initial days, if you are buying Bitcoin, which you should, you will be required to go through KYC.
Bitcoin doesn’t see any borders. It is blind to them.
At the protocol level, there is no feature embedded in Bitcoin to be able to understand borders. Once can transact with anyone from anywhere in the world by being connected to the internet.
This has enormous repercussions as unlike sending your money across borders through traditional means takes days and huge fees, but Bitcoin does it almost for free with total transparency in the fastest way.
Now, you can move any amount of money across borders and be assured that it will reach on or before time with Bitcoin transaction fees 90% lower than what you usually pay through traditional banking.
#4. Censorship Resistant & Apolitical
Bitcoin is deaf, and it is good.
It doesn’t hear any political voices and thus is censorship-resistant. This property itself cannot be coded but is an emergent property of the system which comes into play due to the right economic incentives the system gives to the participants. In this case the users, the miners, and the dev guys.
Unlike the traditional banking system, you cannot flag a transaction on the Bitcoin network. Once it is done it is done. It is irreversible.
The network doesn’t care or rather I should say it doesn’t understand for what purpose value is being transferred and why should it also, after all, that’s actual privacy.
This feature is a priceless feature to have in this censored world, and hence, Bitcoin has value.
Bitcoin has no face. There is no founder, no company’s headquarters, or no one as its head.
Of course, Satoshi Nakamoto first presented the whitepaper, but the identity is yet unknown. Forget about identity; we don’t even know whether Satoshi was a single person or a group of individuals.
Another advantage of having no-face is that no one can sue you. The important part of suing someone is to know where to send the summon or notice, to which address.
In Bitcoin, there is no address to send a notice, whereas just after the announcement of Libra by Facebook- the US government send them a notice to stop their further development.
Now, I guess you understand the pricelessness of facelessness!!
#6. Network Effect
Bitcoin has the highest network effect when compared with other digital assets.
The network effect means as more people join the network more valuable it becomes. Consider the example of Facebook. Why everyone joined Facebook?
Well, because everyone else was joining it. Your friends were joining it; your family members were joining, so you too were compelled in a way to be on it.
And as the number of people kept on increasing, the more valuable Facebook started becoming. Similarly, more and more people are using Bitcoin to safeguard their purchasing power from the inflationary policies of their nation-states and to transact in a censorship-resistant environment.
#7. Sound Money
I just talked about the inflationary policies of your government.
Your government isn’t acting in your best interest. They are devaluing your national currency bit by bit every year. Your 100 dollar bill isn’t capable of buying the same amount of stuff once it was capable of buying a few years back.
Just pause and think about it; you will understand what I am saying.
This means the money you are using isn’t sound enough. It losses valuable on an annual basis, whereas sound money gains purchasing power each year.
Look at Bitcoin. If you compare it based on every 2 or 3 years, it has only gained purchasing power. Of course, it is volatile. It too loses value, but that loss is not due to the inflationary policies.
This loss is due to demand and supply. This is due to the skepticism of holders of Bitcoin. But once Bitcoin establishes itself as an effective store of value, this volatility will also go away and then every year, you will see the purchasing power of Bitcoin only increasing.
And this is the main reason why many people believe Bitcoin is valuable, but this sound money feature is only possible with Bitcoin because of the other six properties I share with you.
Value Of Bitcoin: What Gives Bitcoin Value?
In a way, Bitcoin should not have any value because it is just a virtual thing. It is unlike Gold or Silver, which you can touch or feel, but yet it does have value.
It has value because for something to be valuable; it is not necessary to have physical existence or the intrinsic value like other commodities we have seen throughout history.
Bitcoin has value because people want it to be valuable. People who are seeking scarcity, privacy, censorship resistance, openness, borderlessness are the people giving value to Bitcoin.
These values the Bitcoin system is able to manifest. It is a tool which people are using to express the values they are seeking. More importantly, it is a system which is capable of expressing these values. Before Bitcoin, no other system in which people put their trust was able to express the value set they were seeking.
But now such a system exists, and it is Bitcoin, and thus it is valuable.
Hey there! I am Sudhir Khatwani, an IT bank professional turned into a cryptocurrency and blockchain proponent from Pune, India. Cryptocurrencies and blockchain will change human life in inconceivable ways and I am here to empower people to understand this new ecosystem so that they can use it for their benefit. You will find me reading about cryptonomics and eating if I am not doing anything else.