This is a legitimate question that makes perfect sense for anyone wanting to buy Bitcoin . Having long been accustomed to central bank currencies issued by governments, it's natural to wonder how Bitcoin, being anonymous, possesses monetary value. For early economists, the answer is simple. Bitcoin has monetary value for the same reason the US dollar does. In other words, Bitcoin is a currency because it is used as a medium of exchange.
This is what deeply gives bitcoin the characteristic of a currency. Although this answer is simplistic, it contains some truth. However, there are other factors that explain the monetary value of bitcoin.
In this article, discover in detail why bitcoin has become a currency like any other central bank currency.
How was bitcoin able to acquire monetary value?
The debate over the monetary value of Bitcoin is less complex today. A few years ago, discussions about Bitcoin led to endless debates about the foundations of its monetary value.
For the most skeptical, Bitcoin is a virtual coin in a " casino " and has no value other than speculative. This is why, for a long time, detractors spoke of tulip mania to explain the rise in Bitcoin's price. This comparison is completely inappropriate and has been refuted for a long time.
As for Bitcoin proponents and maximalists , Bitcoin is the gold standard. They will repeatedly tell you that 1 = 1 Bitcoin to emphasize that Bitcoin is the new benchmark of the monetary system. Even more so, for them, Bitcoin is not just a currency, but the best currency ever created by humankind. From this perspective, Bitcoin is considered the ultimate " sound money ," meaning a stable and enduring currency.
Let's see why more and more people are giving reasons to bitcoiners.
A little return to the origins of money: trust
Looking at the scale and importance of money in our everyday lives, we may be tempted to believe that it is the element at the origin of civilization. But this is not the case. Men have long lived and exchanged value without money (as we know it today). Far from wanting to examine the whole story on the evolution of money here, it is important to know that money is a result of collective trust.
Indeed, it was enough for people to agree that a specific thing was valuable for it to be the case. Everything depended on the common trust that we placed in something. More precisely, it was a common and tacit agreement to decree that this or that thing had value.
If we go back in time, the first monetary exchanges were facilitated by products such as shells and rocks. Then, very quickly, this was replaced by precious stones and rare metals. It was later around the 17th century that currencies issued by governments were established. These have become the most widely accepted form of currency. It is good to remember, however, that as money evolved, it always had the attributes.
These are for example fungibility, rarity and non-infringement. Additionally, people have found that it is more convenient to use currencies that are easily portable, stable, and divisible.
Is bitcoin a currency?
If we follow the criteria mentioned above, the answer to this question is yes.
Indeed, Bitcoin has value just like fiat currencies and digital money. In addition to being widely accepted, it is used to transfer value and to buy or sell goods.
However, unlike US dollars, whose value and legal status are imposed by the government, bitcoin's value comes from its code. But also from its infrastructure, its scarcity, and most importantly, its adoption. Bitcoin being mined through the process of mining, which is a difficult activity, makes bitcoin a "scarce" good.
What are the properties that give bitcoin “value”?
➡️ Bitcoin is rare
“What is rare is precious,” right? Unlike traditional fiat currencies that can inflate endlessly, Bitcoin introduces digital scarcity. There will only ever be 21 million BTC . Unlike fiat currencies, which experience annual inflation and lose some of their value, Bitcoin's inflation is limited and controlled. Furthermore, if we account for bitcoins that are permanently lost (sent to incorrect or nonexistent addresses, or those in wallets with lost keys, etc.), the supply experiences deflation, meaning there will be fewer and fewer bitcoins available.
➡️ Bitcoin is divisible
Many may believe that Bitcoin is a single unit, but that's not the case at all. A single Bitcoin can be divided into 100,000,000 Satoshis. One Satoshi is equivalent to 0,00000001 BTC, the smallest unit of Bitcoin at present. This level of division is built into the original Bitcoin code. If needed, the division level can be changed to 16 decimal places or more, meaning that Bitcoin offers an infinite degree of divisibility.
➡️ Bitcoin is easy to carry (Portability)
If this characteristic seems insignificant to you, then you are mistaken. The portability of a currency is a crucial element. It is precisely because of the difficulty of transporting considerable quantities of gold that it is difficult to use it as everyday currency. This is precisely why banknotes had to be used. Gold was not practical for large-value transactions. It is difficult to transport, and in terms of security, it is easy to understand the risk of carrying gold (theft, etc.).
Bitcoins can be transferred via a communication channel such as the Internet or satellites, making it the most transferable currency that has ever existed and simple to carry in any quantity. Bitcoin is the internet currency par excellence.
➡️ Bitcoin is fungible (fungibility)
Fungibility implies that each bitcoin has the same value as its counterpart, regardless of its owner and its history. Just like one ounce of pure gold is always equal to another ounce of pure gold. No matter what happens, a bitcoin remains a symbol of value interchangeable with another bitcoin.
➡️ Sustainability
Any Bitcoin or Satoshi can be reused countless times without degrading. You should know that gold has long been the monetary value par excellence due to the profoundly durable nature of gold.
➡️ Acceptance in exchanges
A growing number of merchants and users recognize and accept Bitcoin. While still far from the level of acceptance of fiat currencies, many people distinguish Bitcoin from non-currencies or other counterfeit currencies and are willing to accept it as a means of payment. Furthermore, we can see that more and more shops are accepting Bitcoin payments.
What other advantages does Bitcoin have over other currencies?
For the criteria defined above, fiat currencies share these same characteristics. However, here is where bitcoin stands out as a currency.
➡️ Decentralization
No single entity oversees Bitcoin. There is no government or state that can control Bitcoin. Unlike traditional money, no one can censor, control, or alter the network or its transactions, so no one can confiscate your money. Unlike fiat currencies, Bitcoin is censorship-resistant , thanks in particular to its decentralized network.
➡️ Accessibility
You do not need to have a verified bank account to own or accept Bitcoins. All you need is basic computer skills and an internet connection. The accessibility of Bitcoin makes it extremely convenient for underbanked parts of the world. Indeed, everyone, without restrictions of age, gender, or geography can send and receive bitcoins. It's everyone's currency.
➡️ Impossible to counterfeit
Every Bitcoin transaction is recorded on a distributed ledger and secured by the computational work of the nodes. The system was designed to avoid the double-spending problem that prevented previous digital currencies from taking off. As a result, all transactions on the Bitcoin network are tamper-proof and irrevocable. Anyone can verify completed transactions, without any possibility of censorship.
➡️ Scalability
Unlike traditional currency, Bitcoin also introduces a programmability dimension. This means that Bitcoin could receive updates and gain even more practical features such as smart contracts, multi-signature transactions, and more. As seen in Bitcoin's increasing use in decentralized finance and the introduction of ordinals , there will inevitably be further developments to the network.
What about stability and store of value?
It is true that bitcoin has all the characteristics to be a reliable and ideal currency for human society, in the age of the internet. It is a fact.
However, it must be acknowledged that one characteristic is still missing: the stability of Bitcoin's price . Due to its volatility, Bitcoin can frighten some investors or even certain entities involved in commercial transactions, for example. Indeed, the price of Bitcoin is heavily determined by the law of supply and demand.
However, this is likely to change as Bitcoin becomes more widely adopted and there is less incentive to speculate on it. In fact, many investors " hold " it and keep it as a safe haven asset, much like they would gold . This is why many people invest in Bitcoin to protect themselves against inflation . Also, until cryptocurrencies are widely adopted, Bitcoin is expected to remain less volatile.
Read the article: According to global data, the hyperbitcoinization of the world is inevitable…
Conclusion on the monetary value of Bitcoin
In conclusion, due to its legitimacy, Bitcoin has acquired undeniable monetary status. It is even considered a future currency for the world. Today, it is used as a medium of exchange worldwide. The most significant reason for Bitcoin's current value is the rush to use it to pay for goods and services, store money, or simply speculate. This is evident in the vast array of things that can now be purchased with Bitcoin.
—>Read the article: What can you buy with bitcoins?
The more the network of bitcoin users and merchants grows, the more secure and advanced the system becomes, and the more the value of bitcoin in USD and other currencies increases.
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Note : No financial advice is given in this article or any other article on ZoneBitcoin. This information is entirely your own judgment. Be responsible for your investments and only invest an amount you are prepared to lose.
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