Why does Bitcoin have any value?

Although cryptocurrency has become a household topic in 2017, what most households don’t understand is — why does cryptocurrency, such as Bitcoin, have any value? (Many actually think crypto has no value at all. But when you ask them why, they couldn’t answer because they have never really thought it through.)

In order to answer this question, we have to ask another fundamental one — where did currency come from?

In the early state of society, the value of a good or service was determined by the amount of labor required to produce it, and then the need for exchange of goods and services bred currency. For example, Bob spent a year to raise a cow and it took Alice the similar amount of labor to raise three lambs. Alice wants to buy cow so she exchanged Bob’s cow with three lambs. However, using livestock as a medium of exchange (barter) was very inconvenient so some people started to use gold instead. When gold was widely accepted as the medium of exchange, it became a currency. You may wonder, did gold come out of thin air and was abruptly assigned a value? Of courses not. Some people spent a lot of time and resources to mine gold so there was labor behind supporting its value. (The situation is more complicated under modern economy where owners of capital are compensated by profit, but we can skip it for now).

If you believe in this theory, then bitcoin has value. Simply put, some people are spending time and resources to build a transaction system, and get compensated with bitcoin. Just like gold…