The Real Reason Bitcoin Is Valuable

Bitcoin is a digital currency with no real-world counterpart. Knowing this I still believe it is extremely valuable.

$40,000 can buy a lot of things such as a new car, expensive jewelry, or even a nice down payment on a home. That kind of money is more than a lot of people make in a year, so it makes sense that you can get a lot with it. You could also use that money to buy digital internet money that has no real-world counterpart — Bitcoin.

To many, it seems outrageous that something only existing in a digital space has any value at all. With dollars, you can get the physical currency. If you own gold, you can have physical gold coins. Owning stock is owning a piece of a company that exists in the real world. Owning Bitcoin is the exact opposite. There is no true physical counterpart for it.

This is where the biggest debates come in for Bitcoin. The first question almost everyone has is, “Why is it worth so much money?”. It’s a question I’ve asked before and is extremely valid. Bitcoin and cryptocurrencies in general are a new and unique technology, so for many the value isn’t readily apparent.

Why FIAT and Gold Have Value

To understand why Bitcoin has value we need to first look at why fiat currencies have any value. Fiat is a term that represents a government-issued currency that isn’t directly backed by any commodity. Most currencies today are fiat, including the U.S. dollar.

There once was a time when currencies were backed by gold, silver, or some other asset. You used to be able to redeem a U.S. dollar for a fixed amount of gold. This is, at least in part, what made a dollar valuable. In 1971 the dollar was completely taken off the gold standard, stopping this practice in the United States. So why does the dollar have any value today?

Removing the dollar off the gold standard did cause some issues, but eventually things stabilized and we continue to use U.S. dollars over 50 years later. This is because even though the dollar isn’t backed by gold, it is backed by something potentially even more valuable. The United States government, including its Army and everything it controls.

The United States is one of, if not the most powerful country on the planet. That means if they say something has value, then it does. In reality, when you accept U.S. dollars in your paycheck you are trusting in the concept of the United States as a country rather than giving value directly to the paper the dollar is printed on.

On the other side of the spectrum, there is gold. Gold isn’t valuable because it’s backed directly by a major superpower. It’s valuable because of what it is — gold. Gold is valuable for several reasons: it’s useful in some products, doesn’t corrode, comes in limited quantities, and has been seen as a status symbol for centuries.

These two assets have value, but the way they get their value is completely different. The U.S. dollar has one controlling entity that assigns value to it. Gold, on the other hand, is valuable because of what it is. So, where does Bitcoin lie on this spectrum?

How Does Bitcoin Have Value?

Bitcoin has been nicknamed digital gold. This is because it gets its value in the same way as gold — for what it is and not who controls it. The technology and concepts that makeup Bitcoin are the reason why it has so much value today. That value continues to increase as more and more people catch on to its usefulness.

Decentralization is the core principle behind what makes Bitcoin work. The whole goal of Bitcoin is to not rely on any singular institution to manage it. With our fiat money we hand a lot of control over to these institutions: The bank you keep your money at or the government that you live under are two good examples.

These large institutions have shown time and time again that they do not have the interests of the average person at heart. Banks are more beholden to their shareholders than their customers and politicians are more concerned with special interests than constituents. For this reason, Bitcoin cuts out the middle man.

Instead, it is run by people and companies all over the world who want to help the network grow. Rather than rewarding wealthy shareholders, Bitcoin rewards those who participate in strengthening the network. These incentives are lined up with those of the majority instead of the few. So when more people join the network everyone benefits.

Conceptually this is why Bitcoin has so much value. You are able to cut out the middle-man and make transactions directly with who you want. On top of that, it is done in an extremely affordable and secure manner. What makes all of this possible is the technology behind it.

The Technology Behind Bitcoin

Blockchain technology is the real powerhouse backing Bitcoin. It’s what allows Bitcoin to do everything mentioned above. A blockchain is a distributed database that is shared among the nodes of the network. Basically, it is a record of all the transactions on the network. All the nodes are different computers that are checking the transactions and sharing them with one another. This allows them all to check each other’s history and make sure that they have the same list of transactions.

The amazing thing about the blockchain is that anyone can connect to and view it. It isn’t locked off for an elite group of people. It is meant to be an extremely transparent way to do transactions. This is how it maintains its honesty. There is no assuming that everything is being done correctly, you can actually go and check for yourself that it is.

The security on the blockchain is ran by special mining nodes. This is what is most commonly referred to as Bitcoin mining. These nodes use their computing power to solve complex equations.

This computing power is being used to secure the network while rewarding the mining nodes with new Bitcoin. In order to circumvent this security feature, you would need to control over 50% of the network’s total computing power. This makes it nearly impossible to bypass a network as large as Bitcoin’s.

These features give Bitcoin an edge over FIAT currencies and even gold. Gold does have some of the same positive characteristics as Bitcoin. However, Bitcoin adds more functionality to them as well as ushering them into the digital age.

Why Bitcoin Is Better Than Gold

Some of the biggest issues with gold are that it is not very useful as a currency. Two important features of a currency are that it is divisible and transportable. Gold can be divided down to a certain extent. It can be turned into coins or bars, but at some point, it gets too hard to break it down into smaller pieces.

Gold is also transportable to a degree. It isn’t really that hard to carry a few gold coins in your pocket. The issue is more a digital one. Gold isn’t really in the digital space. It is a physical asset. That means digital payments are practically impossible. Even if you are using something that allows you to buy items with gold online you are trusting another institution to hold that gold for you.

Bitcoin solves both of these problems. Bitcoin can be divided down to 0.00000001 BTC and the divisibility can be increased further if needed. This smaller unit of a Bitcoin has even been given a name ‒ similar to that of what a penny is to a dollar. They call them a Satoshi, named after the anonymous founder of Bitcoin, Satoshi Nakamoto. This means that no matter what the price of Bitcoin is, you will always be able to break it down into a useful size.

Bitcoin is also extremely transportable. It can be sent to anyone anywhere in the world as long as they have a Bitcoin wallet address. This can be done with minimal fees and in a relatively short period of time. Access to your Bitcoins can be stored in a lot of places as well, like on your phone or computer. This means you can easily access them no matter where you are, making Bitcoin one of the most transportable currencies in the world.

Bitcoin Does Have Value

Clearly, Bitcoin does have real intrinsic value. It is the most decentralized and secure money that has ever been made. It allows individuals to take the control and power of their money away from the elite. It doesn’t discriminate and anyone can participate in the network. A currency very different from our current monetary system — Bitcoin brings hope to those who have been left behind.