One of the most common misunderstandings about Bitcoin is where its value comes from. Those skeptical of the digital asset typically understand Bitcoin as nothing more than computer code. However, this is far from the truth, and the underlying blockchain and mining system help to make Bitcoin a sort of digital gold.
To understand why Bitcoin has value, it is important first to contextualize what Bitcoin is and the significance of the blockchain. Bitcoin’s blockchain has been around since 2009. This means that its blockchain has over 11 years worth of transaction history, and every single Bitcoin transaction since then is stored on the blockchain. The record of these transactions isn’t held by just one person, but thousands, if not tens of thousands, of people around the world who are known as miners or validators. All of these people have a full copy of the Bitcoin blockchain on their computer and also help to validate new transactions.
However, these validators do not do all of this for free. Computer storage costs money, as does the electricity and computing power needed to validate transactions. When Bitcoin was created back in 2009, it was programmed such that only 21 million bitcoin would ever be in existence. These Bitcoins would be distributed to those who helped upkeep the network by validating transactions, and these people are known as miners. Back in 2009, the emittance rate of new Bitcoins was 50 new Bitcoins every 10 minutes, and the circulating supply started at 0. All of the people who downloaded the Bitcoin blockchain and began to validate new transactions as they came in became known as miners, since their computers were effectively mining for Bitcoins. The process of mining is very computationally-intensive, and only one person gets the entire Bitcoin reward, and the winner of the reward is based on whichever computer is the first to solve a complex math equation. Over time, the emittance rate of Bitcoin is set to automatically decrease by 50% every four years. Now, only 6.25 Bitcoins are released every 10 minutes, and there are around 18 million Bitcoins circulating. The full 21 million Bitcoins won’t be released until 2139, so it’s still a long ways away.
On top of this, anyone who sends a Bitcoin transaction also sends a small transaction fee along with it, and this also gets distributed to the miners. This means that the more people that transact using Bitcoin, the more fees that are generated, and the more profitable mining becomes, which helps to prop up the whole ecosystem.
Since tens of thousands of miners are exchanging their time, electricity, computing power, and opportunity cost for Bitcoin, it is easy to see that there must be some sort of inherent value. Some have argued that the floor value for 1 Bitcoin is around $4,000, since this is the estimated amount of hardware and electricity required to mine 1 Bitcoin, and nobody would sell one for less than it costs to mine. This number will also increase over time, as the Bitcoin blockchain is programmed to automatically make it more difficult to mine Bitcoins as hardware becomes better
Furthermore, when thinking about the worth of the Bitcoin blockchain, it is easy to see how there is inherent value. Bitcoin allows you to send money to anyone, anywhere in the world, without having to go through any sort of intermediary like a bank or government, and the transaction can go through quickly and cheaply.
Bitcoin can also be thought of as a digital gold. Just like real gold, it has value because people believe it has value. It’s also independent of any world government, and can be seen as a hedge against the dollar.
The only difference between gold and Bitcoin is their history. Gold, of course, has been used as a monetary unit for thousands of years, but has only been a tool for speculation in the United States since we left the gold standard in the 20th century. Bitcoin, on the other hand, has only been around for a decade. However, with each passing day, Bitcoin becomes more legitimized and each day it doesn’t drop to 0 it proves its value as a hedge against other forms of currency.
Though Bitcoin’s true value is hard to determine, it is easy to see where Bitcoin gets its inherent value from, and why it is a digital gold that could be used as a hedge against any government uncertainty.
By Lincoln Murr