bonfacenjuguna36

· 26 Nov 2021

Follow Following

Why does bitcoin have value?

Bitcoin doesn't even have the support of governmental agencies, nor does it possess an intermediary banking system to spread its use. In the Bitcoin network, consensus-based transactions are approved by a decentralized network made up of independent nodes.

There is no fiat authority, such as a government or another monetary authority, to serve as a counterparty to endanger and make financiers whole if a transaction goes wrong. The vastness of the Bitcoin network, on the other hand, makes double-spending rare. It would be necessary to launch a so-called 51 percent attack, in which a gang of miners’ controls over half of the network's power. This group might use its majority of network power to control the rest of the network and fabricate records. Such an attack on Bitcoin, on the other hand, would need a massive amount of money, effort, and processing power, making it exceedingly implausible.

Bitcoin, on the other hand, fails to pass the utility test because it is rarely used for retail transactions. The economics of Bitcoin's supply and demand is thus its primary source of value. The case for Bitcoin's worth is similar to that for gold, a commodity with similar attributes to Bitcoin. The cryptocurrency's supply is limited to 21 million units.

It’s worth is determined by its scarcity. Demand for Bitcoin has risen as the cryptocurrency's supply has shrunk. Investors are hungry for a piece of the ever-growing profit pie generated by trading the restricted supply.
Bitcoin, like gold, has a limited utility with primarily industrial applications. The blockchain technology that underpins Bitcoin is being tested and being used as a payment mechanism.

Remittances across borders are one of the most effective use cases for increasing speed and lowering costs. Some nations, such as El Salvador, are banking that Bitcoin's technology will advance to the point where it can be used for everyday transactions.

Another theory is that Bitcoin's intrinsic worth is determined by the marginal cost of creation.

Bitcoin mining consumes a significant amount of electricity, which comes at a real cost to miners. As per the economic theory, the selling price of a product in a competitive industry among producers all producing the same thing will tend to its production cost. This production cost theory does, in fact, mirror the price of the bitcoin, according to empirical evidence.

However, the cryptocurrency has some characteristics of a fiat money system. It is, for example, scarce and can be split into Satoshis, which are smaller units. It can't be replicated. The only way to make a counterfeit bitcoin is to use a technique known as double-spending.  This occurs when a person "spends" or "transfers" the very same bitcoin in two or even more different places, thus producing a duplicate record.

The cryptocurrency's economy does ensure that it is prepared when that happens. One bitcoin has a significantly higher divisibility factor than standard fiat money units. Satoshis are the constituent units that can be subdivided up to 8 decimal places. A fiat currency, like the United States dollar, is normally equivalent to a hundredth of the unit.

Users with a fraction of a bitcoin are going to be able to join in Bitcoin transactions if the cryptocurrency's price continues to grow over time. The creation of side channels, like the Lightning Network, should help Bitcoin's economy grow even further.