One of the most questions about Bitcoin is, how does Bitcoin have value?
Put another way, what makes Bitcoin so valuable?
It’s a complicated question that can’t be answered in a sentence. This article will go into why Bitcoin has value.
To answer the question simply, Bitcoin certainly has value – it’s worth approximately $10,000 USD at the time of writing!
What Makes Bitcoin Valuable?
This section will cover the six objective reasons that Bitcoin, and any currency for that matter, is considered valuable. We will also include one subjective reason that Bitcoin is valuable.
The subjective reason is actually one of the most important reasons that Bitcoin is valuable.
Store of Value
For a currency to have any value, all parties must agree that it has value. This is why you can print your own currency, but it’s worthless unless another party views it as value.
This is the subjective reason that Bitcoin, and any currency, has value – people assign value to it. In the case of Bitcoin, enough people have agreed that it has value, which means it has value.
Of course, this reason alone does not make Bitcoin a good currency. Lots of things in the world are valuable, but make a terrible currency. The next five reasons will explain why Bitcoin works as a currency.
First, Bitcoin is a scarce resource, which is a necessity for any currency to have value. Just think, if a currency was not scarce, then it would not have any value. Sand, for example, has no value as a currency because it’s one of the most abundant resources on earth.
How is Bitcoin scare?
The number of bitcoin that can be produced has a hard cap of 21 million. Once 21 million bitcoin have been mined, no more can be produced.
This is actually better than fiat currency because the central banks of the world have no limit on the amount of money they can print. They can simply print more money whenever they need it.
However, if a central bank prints too much money, then the currency will no longer be a scarce resource. And it will no longer have any value.
A currency must have utility for it to work as a currency. For example, a ton of gold or other precious metal might be worth a lot of money, but it’s difficult to carry gold or metal, which makes it a terrible form of currency from a utility perspective.
Does Bitcoin have utility?
Yes. Bitcoin has utility.
It’s entirely digital and the only requirement to use it is an internet connection.
In fact, the utility of Bitcoin is one of the biggest benefits of it. Transactions are fast, easy, and can be done seamlessly between parties on opposite sides of the world.
There is not a currency with more utility than Bitcoin.
A currency must be divisible into small parts for it to have any success as a currency. A currency that can’t be divided into smaller increments is simply too burdensome to use.
Is Bitcoin divisible?
Yes, Bitcoin is highly divisible. The smallest unit of a bitcoin is a satoshi, which is equal to 100 millionth of a bitcoin.
That’s extremely small, which means that Bitcoin will not have any problem even if the price rises to one million dollars per bitcoin.
A currency must last a reasonably long time if it is to have any success as a currency. Paper bills that last four years are not particularly durable. No one will want to use a currency that doesn’t last long enough to get any use.
Is Bitcoin durable?
Yes. Bitcoin is a durable currency. Bitcoin cannot actually be destroyed. The only way to lose Bitcoin is to lose access to your cryptocurrency wallet.
Yet again, Bitcoin is the most durable currency currently available.
Difficult to Counterfeit
Finally, a currency must be difficult to counterfeit. If a currency is easy to counterfeit, then counterfeiters can easily produce more currency.
Users will lose faith in the currency if too many counterfeits exist, which will degrade the utility and even the scarcity of the currency.
This is why the United States Secret Service, and every country, takes counterfeiting currency extremely seriously.
Is Bitcoin difficult to counterfeit?
Yes, Bitcoin is actually impossible to counterfeit. There is no possible way to counterfeit Bitcoin, so this is simply not a concern for Bitcoin.
The Problem With Bitcoin as a Currency
As you may have noticed, Bitcoin meets all six of the objective standards for a currency, which makes it quite valuable and useful. It’s scarce, durable, divisible, has utility, and is difficult to counterfeit.
The one problem with Bitcoin as a currency is it’s not the best store of value.
Not The Best Store of Value?
We know, this might surprise you. Bitcoin is worth almost $10,000 USD, how can it be a bad store of value?
Well, we didn’t say it was worthless. The problem with Bitcoin as a store of value is that the price varies wildly, and that has a tendency to scare off anyone looking to use it as a medium to store value.
That covers it for the reasons that Bitcoin has value. In summary, Bitcoin has value because people assign it value.
People don’t assign value to Bitcoin for no reason, though. The reasons Bitcoin has value are extremely solid in our opinion.
They include the scarcity, durability, divisibility, utility, and lack of counterfeitability. This naturally begs this question, what can Bitcoin do to increase its value?
The easiest way for Bitcoin to increase its value is by increasing the market share of cryptocurrency. The more people that view Bitcoin as a legitimate asset, then the more valuable it becomes.
The biggest roadblock, of course, is that Bitcoin is a new form of currency that people do not fully understand. Once people fully understand Bitcoin, the coin will become even more valuable than it already is at the current time.