The internal and external value of Bitcoin
There are misconceptions about Bitcoin, so the scope of this article is to clarify things out. A great misconception is that, Bitcoin has no value in it. This is not so. Let’s check in detail, about the resources that Bitcoin needs to be mined.
1. Computing power to solve all the cryptographic tests to get a coin for reward
2. Electric Power, to operate the hardware
3. Internet connection, to get connected to other miners and join the mining network
So when a coin is “mined” it encapsulates the cost of all the above resources. So it has a value, as a regular coin encapsulates the cost of mining, metal melting and processing, and minting. So a Bitcoin has value that is called internal value.
Nowadays, most of the currency and the commodities, are traded in exchanges and the trading value, obeys to the rule of offer and demand, as we have chosen the “free market” model. The same happens for Bitcoins. They are traded and have a value call exchange value.
There are two misconceptions about Bitcoin:
1. The internal value is very small.
2. It is virtual currency, it has virtual value
Let’s start clearing things up. For the first, if you look at the mining companies, the mining is not profitable if you look it with dollar/euro exchange rates. Yes, it’s not profitable, because the cost of the power needed to mine is more that the money you get when exchanging the Bitcoins to other currencies. This means that internal value is higher than the exchange value. This is normal because the demand needed to rise the price to internal value, has not shown up.
For the second misconception it’s easier to explain. It’s virtual, because we cannot hold it in our hands, not because it does not have value.