Bitcoin is commonly referred to as digital currency and can also be used as an alternative to fiat money that is controlled by the central bank. Fiat money is valuable since it is provided by a central authority and is widely used within an economy. Bitcoin operates in a decentralized network and the crypto is not used much in retail payments.
Bitcoin's value can be viewed to be the same as that of precious metals. Both have a limited quantity and are used selectively. Gold for instance is used in industrial applications while Bitcoins blockchain technology is used in financial services.
Why does fiat money have value?
Useful currency has various attributes including divisibility, scarcity, portability, acceptability, resistance to counterfeiting, and durability. These qualities make fiat money have a wide use within an economy. They also put a limitation on inflation and ensure that the currencies are safe for use.
Currency can be used if it is a store of value and if it can maintain its value over time. Since antiquity communities have used precious metals or commodities as methods of payment since they were seen to offer a stable value.
Rather than carrying heavy quantities of gold or soybeans or other forms of traditional money societies began using minted currency. These first currencies used metals such as gold, silver, and bronze that had longer life shelves and low depreciation risks. In modern times government currencies take the form of paper which is not as scarce as special metal. The value of paper money was determined by the gold that backed it.
The value of the digital currency
Gold was a useful currency due to its physical qualities but it was heavy. Paper on the other hand requires manufacturing and storage and is not as mobile as digital currencies. Money has evolved digitally moving it from its physical attributes.
Why does Bitcoin have value?
Bitcoin is not backed by the government. It is based on a decentralized network that is made up of nodes responsible for approving consensus-based exchanges within the Bitcoin network. Bitcoin is scarce making it impossible to be counterfeited. The only way that Bitcoin can be counterfeited is through double-spending. This is when a user transfers or spends the same Bitcoin in more than two separate instances leading to the creation of a duplicate record.
The size of the Bitcoin network makes double spending impossible. This is also referred to as a 51% attack which involves a group of miners who theoretically regulate more than half of the total network power. It can dominate the remaining network to corrupt records. Such an attack would need a great effort, money, and computer power hence rendering the possibility unlikely.
However, Bitcoin fails the utility test sometimes since it is rarely used for making retail transactions. The main source of bitcoins value is its scarcity. Bitcoins' value is arguably the same as gold. Bitcoin is limited to 21 million in value.
In summary, investing in Bitcoin is a lucrative endeavor given its value. However, due to its volatility, Bitcoin can be a tricky crypto to invest in. It is highly valuable but these fluctuations make it a risky investment to indulge in. Trading Bitcoin in safe online exchanges like xbt app ifex 360 AI will go a long way in helping you make valuable investments.