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Why do Bitcoins Have Value?

By August 21, 2020May 9th, 20234 minute read

Recently, former CEO of the insurance giant Prudential, George Ball in an interview with Reuters, said that bitcoin is an attractive long-term investment bet. He thinks that BTC is a safe haven for traders and investors.

It is important to know that Mr. Ball was previously a hater of bitcoin, cryptocurrencies and blockchain technology.

But then what made him change his heart? Why did a company like MicroStrategy buy $250 million worth of bitcoins last week?

Because these mainstream financial market bigwigs now believe that BTC has ‘concrete’ intrinsic value as opposed to traditional assets and markets.

And why’s that?

Because bitcoin is decentralized, durable, portable, fungible, scarce, divisible, and recognizable. And most importantly, the cryptocurrency’s design is based on the standard principles of mathematics.

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Decentralized

Probably the most unique trait that imparts bitcoin its value is decentralization. By the very design of its protocol, Bitcoin operates over a public network of computers – blockchain.

This network of participants keeps Bitcoin running by ensuring that every member has access to the latest version of the blockchain i.e the longest chain.

No central authority, or a third party organization controls Bitcoin. And recent data suggests that over the last 5 years, bitcoin’s ownership has become much more decentralized.

This means that the concentration of entities holding large number of BTC has reduced and those holding small quantities has significantly increased. One of the reason why bitcoin’s value is increasing.

Percentage of Bitcoin Supply by Entities That Own ≤ 10 BTC
Percentage of Bitcoin Supply by Entities That Own ≤ 10 BTC, Source: Glassnode
Bitcoin Addresses Holding More Than $10 Worth BTC
Bitcoin Addresses Holding More Than $10 Worth BTC, Source: Coin Metrics

Durability

Bitcoins are inherently lines of code that exist as ledger entries on a public and distributed network. For the last 11 years, this network has been running 24X7X365 with 99.98 percent uptime.

Cryptography secures BTC transactions. It also makes them remarkably efficient. Also, Bitcoin’s code is available in a public repository on GitHub, which in turn is stored in the Arctic Code Vault. From what it looks, bitcoin is a pretty durable asset and can stand the tests of time.

Portability

There are a number of wallet options available where you can transfer your BTC holdings and move around freely, travel anywhere you like.

You can access your bitcoins from anywhere across the world. Because the money that you spend on investing in BTC actually gets you ownership of a section on the Bitcoin blockchain.

This means that BTC is free from a physical form or a place of storage.

Bitcoin is so portable that now it is not necessary to connect to the internet for conducting a BTC transaction.

State-of-the-art advancements by Bitcoin development companies like Blockstream have made it possible to make BTC transfers without the web. So much so, that transactions can happen from outer space as well!

Scarcity

Scarcity is the most characteristic attribute of bitcoin that makes it a valuable asset. There will only ever be 21 million bitcoins.

This is a feature that pre-programmed in the Bitcoin right from the start when the first block was mined. Mining or the process of producing new BTC requires proof-of-work.

Miners have to prove that their hardware is capable of verifying transactions on the bitcoin protocol amid rising mining difficulty. This is how they win BTC rewards for successfully verifying transactions and circulating them in the market.

Also, a technical feature even known as halving which reduces the bitcoin block reward every four years, ensures that powerful miners don’t empty the entire remaining supply.

Divisibility

Divisibility is another aspect that makes bitcoin a valuable asset. 1 BTC is divisible into 10 million small entities. Each entity is a satoshi.

This means that bitcoin’s limited supply cannot hinder its adoption. The world’s topmost cryptocurrency can find usage even in fractional quantities, up to the eighth decimal place!

With regards to investment too, it is not necessary to buy 1 whole BTC. You can buy a few satoshis or just a small portion of the entire bitcoin.

Fungibility

Similar to all other legitimate assets like gold, and state-backed currencies like the INR, every bitcoin can be exchanged for another.

Bitcoins irrespective of their history of ownership and usage still continue to hold value up until the individual satoshi.

Bitcoins/Satoshis emerging from one source are completely interchangeable with an equivalent number of bitcoins/satoshis emerging from some other source.

Recognizable

As of date bitcoin has garnered a lot of respect and credibility as an investable asset. Despite being criticized as a scam, and a Ponzi scheme, BTC has made a lot of money for investors especially the early entrants.

Also, it has accrued quite some support from conventional financial market and technology influencers like Federal Reserve chairman Jerome Powell, billionaire macro investor Paul Tudor Jones, Twitter founder, and CEO Jack Dorsey, etc.

These are some of the attributes that explain why bitcoins have value. Know any other feature, that imparts value to BTC? Share them with us in the comments below!

Frequently Asked Questions

Who Created Bitcoin?

Bitcoin is the first application of the concept of "cryptocurrency," first articulated in 1998 on the cypherpunks mailing list by Wei Dai, who proposed a new form of money that relies on cryptography rather than a central authority to manage its creation and transactions. Satoshi Nakamoto published the initial Bitcoin specification and proof of concept on the cryptography mailing list in 2009. Satoshi exited the project in late 2010, with little information about himself available. Since then, the community has evolved, with numerous people working on Bitcoin. Satoshi's anonymity has sparked unfounded fears, many of which may be traced back to a misunderstanding of Bitcoin's open-source nature.

What Is Meant By Bitcoin?

Bitcoin is a digital currency that was initially released in January 2009. It is based on ideas offered by Satoshi Nakamoto, a mysterious and pseudonymous figure, in a whitepaper. The name of the person or individuals who invented technology has not been revealed. Bitcoin promises lower transaction fees than other online payment systems, and unlike government-issued currencies, it is decentralized.

How Much Is 1 Bitcoin Worth Today?

Check out the current price of Bitcoin on the WazirX exchange. Bitcoin's value is primarily determined by its supply and demand in the market. Other elements have an impact on its worth. Its intrinsic value can also be calculated by calculating the average marginal cost of producing a Bitcoin at any given time, based on the block reward, electricity price, mining hardware energy efficiency, and mining difficulty.

How Bitcoin Works?

Bitcoin is based on the blockchain, a distributed digital ledger. As the name implies, blockchain is a connected database made up of blocks that hold information about each transaction, such as the date and time, total value, buyer and seller, and a unique identifier for each exchange. Entries are linked in chronological sequence, forming a digital chain of blocks. Blockchain is decentralized, meaning a centralized institution does not own it

How Many Bitcoins Will Ever Be Created?

The source code of Bitcoin stipulates that it must have a restricted and finite quantity. As a result, only 21 million Bitcoins will ever be generated. These Bitcoins are added to the Bitcoin supply at a predetermined rate of one block every ten minutes on average. The supply of Bitcoins will be depleted once miners have unlocked this number of Bitcoins. It's possible, however, that the protocol for Bitcoin will be altered to allow for a higher supply.

How Does Bitcoin Technology Work?

The blockchain is the foundation of Bitcoin. It is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can't be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare.

How To Make Bitcoin?

Bitcoin mining is not just the process of putting new Bitcoins into circulation, but it is also an essential part of the blockchain ledger's upkeep and development. It is carried out with the assistance of highly advanced computers that answer challenging computational math problems. Miners are rewarded for their efforts as auditors. They are in charge of ensuring that Bitcoin transactions are legitimate. Satoshi Nakamoto, who is the founder of Bitcoin, innovated this standard for keeping Bitcoin users ethical. Miners help to prevent the "double-spending problem" by confirming transactions.

Is Bitcoin Mining Free?

Bitcoin mining isn't free, but it can be tried on a budget. Bitcoin mining is an essential part of the blockchain ledger's upkeep and development and the act of issuing new Bitcoins. It is accomplished by the use of cutting-edge computers that tackle complicated computational arithmetic problems. The effort of auditor miners is rewarded. They're in charge of ensuring that Bitcoin transactions go off without a fuss and that they're legal.

Is Bitcoin Cash A Good Investment?

Bitcoin Cash is a hard fork of Bitcoin formed in 2017 to address Bitcoin's scalability and challenges. Bitcoin Cash seeks to make global transactions faster, cheaper, and more secure. Bitcoin Cash is now accepted by thousands of online and offline businesses all over the world. Studied correctly, Bitcoin Cash may be an investment worthy of consideration.

Is Bitcoin Trading Is Legal In India?

In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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