A common attack from Bitcoin critics is based on the wrong assumption that Bitcoin has no value.
This is, of course, false. Bitcoin has value.
In fact, we argue that Bitcoin has just as much value as fiat currencies and even gold. This article will explain our reasoning.
What makes Bitcoin valuable?
First, we have to cover what makes Bitcoin valuable. This section will detail some of the many factors that make it valuable.
Scarcity is the most important aspect of determining value.
Simply put, you can’t have a valuable resource if everyone has it. This is why sand in the desert isn’t worth anything – everyone has it!
Anyway, Bitcoin has a limited supply of 21 million bitcoin. Once that number is reached, no more Bitcoin can be created out of existence.
This contrasts against something such as precious metals or fiat currency that have a seemingly infinite supply.
Next, a currency needs value because of utility. It’s one thing to have scarcity, but it must have a use for it to be considered valuable.
And Bitcoin has plenty of uses.
The main selling point of Bitcoin is that it’s a decentralized currency free from any government controls. No authority can reverse a Bitcoin transaction nor can they close your Bitcoin wallet.
That’s right, no one can stop the movement of Bitcoin between two parties.
It might not sound like much, but Bitcoin is extremely unique in that regard. The only real comparison to Bitcoin would be fiat currency, which is plagued with scarcity problems and has a centralized authority that can deem the currency worthless.
The two previous points covered the aspects of Bitcoin that make it a valid currency. Most of the actual value of Bitcoin comes from Bitcoin.
Most Americans have a general idea about Bitcoin, which makes the brand itself worth quite a bit.
And when it comes to currency, recognition is extremely important as it directly relates to utility and the below point.
Accepted as Currency
Finally, Bitcoin derives most of its value for one reason:
People accept it as a currency.
If no one accepted Bitcoin as currency, then it would have no value.
However, this isn’t the case. Bitcoin is accepted as currency in many stores and by a few governments.
This means that you can use your Bitcoin as an exchange of value.
And that’s all that really matters when it comes to a currency.
Which is better: fiat currency or Bitcoin?
In our opinion, Bitcoin is a much better currency than fiat currency in theory. A world in which a decentralized group had a currency would be ideal.
No one would have to worry about their bank account getting closed, a transaction getting blocked, or hyperinflation.
Bitcoin has none of those problems.
However, we don’t live in that world. It is extremely difficult, basically impossible, to live on Bitcoin alone.
With that point in mind, we would argue that fiat currency is more practical, but Bitcoin is certainly more ideal.
Which is better: gold or Bitcoin?
This question is a little more difficult to answer because gold is much better than fiat currency.
Gold has most of the same benefits of Bitcoin with even more utility – everyone in the world accepts gold as valuable.
Gold has an Achilles’ heel, though.
It is susceptible to gold rushes that flood the market, which can easily crash the price.
Here’s a possible scenario for gold. Imagine that a gold mine is discovered that has approximately 10% of the world’s gold in it.
What would that discovery do to the price of gold?
It would completely crater the price.
Yes, it’s unlikely to occur, but there are no safeguards in place to prevent gold from flooding the market.
Bitcoin, on the other hand, has a limited supply of 21 million bitcoin. No more bitcoin can be mined when that maximum coin capacity is reached.