We all know that gold is more valuable than silver. Similarly, crude oil is more valuable than coal and so forth. But what defines the value of an asset? The value of an asset is determined by what people think about it, its usefulness, its liquidity, and the sentiment of the public. Bitcoin is no different.
It is the investors that make Bitcoin’s price rise or fall. Initially supported by tech-savvy crowds only, Bitcoin has now attracted the attention of everyone, which probably don’t fully understand how it really works. However, with a market cap of USD 200,000,000, Bitcoin is an established commodity.
Bitcoin as a transactional tool
Resources of gold back traditional currencies, or at least they were until the ’70s when the President of the United States decided to switch to fiat money. Bitcoin is backed by the technology it was built in and the security its decentralized structure guarantees. As the whole network validates transactions, the need for a financial regulator is eliminated, and a distributed ledger is substituting the “trust”. As every member of the Blockchain, the miners, hold the same copy of transactions (blocks) that have ever existed, each Bitcoin cannot be duplicated and be spent twice, as the network will identify and eliminate the false entity.
Bitcoin network (or Blockchain) cannot be shut down, and transactions can be executed in anonymity, legally bypassing potential governmental capital controls. Bitcoin’s utility value can only increase in time, as more merchants and established corporations recognize and accept Bitcoin as an alternative payment method.
Bitcoin as a long-term investment and storage
Similar to gold, Bitcoin is an asset in scarcity. The number of Bitcoins is finite (21 million) and as mining them will become harder in time, Bitcoin’s price is only expected to rise more. Additionally, unlike fiat currencies, Bitcoin cannot be diluted and isn’t prone to inflation. Moreover, the up-surging price of Bitcoin has turned it into a long-term investment, over a transactional tool.
For this reason, people also consider Bitcoin as portable and cost-optimized storage for their money. The hodlers, Bitcoin community’s slang for holders, can keep their savings securely in their digital wallet, protected by governmental confiscations, physical theft or environmental disasters.
Investors are trying to benefit from the volatility of Bitcoin, which is being traded as future contracts at respectable markets, like Cboe Futures Exchange and CME Group.
Bitcoin Blockchain (and other Blockchains like Ethereum) are much more than just a currency. Blockchain enables applications to be built on its structure and utilize the blocks (Smart Contracts) to facilitate numerous actions. Decentralization will soon enable artists to independently distribute their work to their fans or place bets on sports games through a tokenized platform.
It would be safe to say that Bitcoin is a multi-dimensional, irreversible disruptive technology that is here to stay. It is only a matter of time that its full potential is unfolded and Bitcoin is massively adopted. Bitcoin’s exponential growth may be scary for governments and financial institutions, but regulating it can only increase its popularity.