Bitcoin is the largest cryptocurrency in the world based on market capitalization, the one investors are most likely to trust and the blueprint for all the altcoins that have followed since its launch. Although it is still a relatively niche investment, the number of traders interested in digital funds has become increasingly more prominent over the years, and nowadays, more people are looking to buy Bitcoin than ever before, especially as the BTC price continues to gain attention. BTC operates on a fully decentralized system, making it fundamentally different from fiat currencies and any other kind of asset class out there
As such, many naysayers have opined that crypto assets have no intrinsic value and are only a little more elevated than a scam. Investors have had to deal with these accusatory beliefs since the earliest days of trading, but it is nonetheless essential to be aware of what exactly makes Bitcoin different and where it gets its value from. Knowing this information can make investors come up with better trading strategies that allow their portfolios to be more resilient and profitable.
Traditional currencies
In order to get a better idea of what Bitcoin does and doesn’t do, we need to go back to the basics and take a look at traditional currencies. The history of money goes back millennia, and over the centuries, it included items such as beads, shells, precious metals, and a plethora of other products people assigned value to, such as foods or animal furs. All of these items were regarded as money long before standardized currencies became a thing. The only thing that needs to be considered money is the ability to act as a store of value and be recognizable among those who exchange it. Naturally, it must also be accepted as a medium of exchange.
That is the most essential criterion that ascribes value to an item and leads to it being considered money. However, there are several other features that ensure a particular currency doesn’t just come into existence, but also that it can be long-lasting and successful. Scarcity is the most crucial feature since a widely available resource would naturally not hold as much value for the public. It must also have several denominations to ensure its efficient use in the broader economy and guarantee that the currency doesn’t become worthless when broken into smaller amounts.
Portability is a practical concern that shouldn’t be ignored since any currency that is simple to carry around, and exchange, will naturally be more popular with the people. Lastly, uniformity is a must, with all denominations having to be identical and not easy to reproduce. Value is typically determined based on supply, demand, and the ability to obtain certain goods or services.
The case for Bitcoin
When it was first launched, Bitcoin was supposed to serve the same purposes as any fiat currency, with the only difference being that it would only exist in a digital format. It was meant to be used for the buying of goods and services, but this plan ultimately didn’t come to pass. Instead, Bitcoin ended up being used as a store of value after investors saw that it tended to appreciate quite significantly over the years. As such, many have made holding their preferred method of dealing with cryptocurrencies, as moderate investors have managed to turn investors into millionaires after several years.
But does Bitcoin share any fundamental features and characteristics with traditional currencies in order to be counted amongst them? The first and most important is scarcity. In fact, this is the trait that separates BTC from other cryptocurrencies as well. The scarcity is one of the main reasons for Bitcoin’s value, as well as the rationale behind its well-known nickname, “digital gold”. There will only ever be twenty-one million Bitcoins, and as the supply of unrewarded coins decreases, the demand naturally increases.
Bitcoin is also much more divisible than fiat currencies, with only one coin capable of being divided into up to eight decimal places. The constituent units are known as satoshis, a reference to the still-unknown creator of the Bitcoin white paper, who went by the pseudonym Satoshi Nakamoto. Although Bitcoin is still a relatively new and niche asset, more and more investors are becoming familiar with it and have started to adopt it if they feel that traditional systems and assets are failing them. Businesses and institutions are increasingly more accepting as well and are looking to make investments of their own, as well as allow buyers to pay for the items they get with digital coins.
The official launch of the exchange-traded funds is expected to act as a driver behind the integration of Bitcoin across an ever-growing number of companies. Bitcoin is also highly portable since it can be used across borders and irrespective of the time or day of the week. All investors need is a reliable internet connection, and they are free to perform transactions whenever they wish. Bitcoin is fully digital, so its durability is reliant on the existence of a virtual area it can occupy and be stored in. Since that doesn’t appear to be an issue, there are also no concerns regarding Bitcoin’s durability.
Given the fundamental traits of the blockchain, coins cannot be counterfeited as they are all unique, and the decentralized ledger has tools in place to prevent such illicit activities from happening. Bitcoin has no physical appearance, so there is also no way for criminals to imitate it.
The bottom line
Like all other currencies, bitcoin gets its value from the supply, demand, and the users themselves. Although some disagree with BTC and don’t consider it to be a valid trading class due to the volatility and fluctuations affecting the market, the truth is that Bitcoin has many of the attributes that classify it as a currency beyond any shadow of a doubt. As long as these characteristics remain set in place, Bitcoin will remain a store of value, a way for investors to speculate, and a means to carry out trades, regardless of its monetary value.
