Value of Bitcoin: Compared to Fiat.
Have you ever wondered what really gives bitcoin its value?
If we can define what makes good money, then perhaps it will better show you what makes Bitcoin valuable.
Cash money, almost by definition, has no intrinsic value. The concept of “legal tender” is so simple it’s almost silly: when an economic agent in a certain country is offered a cash payment in the country’s legal tender (Naira in Nigeria, US dollars in the USA, Euro in the Eurozone), it’s illegal for them to refuse such payment. That’s exactly what the inscription “this note is legal tender for all debts, public and private” on every US dollar bill means. But the piece of paper itself has no value.
bitcoin’s value has grown because more people have recognized its usefulness as well as its fundamental integrity. As the consensus of Bitcoin as money grows then so does its value as a money system. More users make it more useful. If we all used Bitcoin for everyday transactions, then its value as a money system would grow some more.
SYSTEM OF MONEY
There are multiple features that make for a good system of money:
Portability — Money should be portable, meaning it can be carried and sent places, unlike a very large gold rock, which would be, very heavy to carry around, costly and time-consuming to send somewhere far.
Divisibility — Money should be able to be broken up into lower denominations. The beauty of a cryptocurrency is that you can send 0.00000001 Bitcoin to somebody. This is important because it allows for micro-transactions, which can create an economy for new types of transactions that we don’t currently have. Jobs and content can be paid for in new ways amongst many other uses.
We do not currently think it to be important but there are only 21 million Bitcoins in supply, but there may be a billion people who will be using it soon. So, having only 0.0000001 BTC may buy you a suit or dress at the point of a billion users, many people are predicting +$500,000 for one Bitcoin, perhaps even before we reach a billion users. And users may not be just human there may be devices transacting with other devices.
Scarcity — Good money shouldn’t be totally pervasive. Though air or water is fundamentally valuable to our existence, it doesn’t make good money, because it’s hard to pay someone with it.
Fungibility — The unit of money should be identically valuable or fungible. So, a $100 bill should be worth $100 just like a different $100 bill. Diamonds are not a good currency because they are all different with different values.
Durability — not easy to break
Storage value — people that can store their valuable items knowing that it can retain its value is what makes good money. Gold has been the best at this, as it’s held its value over thousands of years. Though the dollar, or other fiat currencies, loses its integrity over time, due to dilution of the monetary base, essentially devaluing your money. So not good for storing. That’s why people with a lot of wealth don’t store a lot in dollars, they will hold their wealth in other assets instead.
These are the key features of money.
VALUE OF BITCOIN
The technology that underpins Bitcoin is called the Blockchain technology. Blockchain allows for pieces of data to be approved and tokenized and then be sent securely across the network without the trust of third parties handling transactions.
Blockchain allows for all the key features of money but also what has brought to the world is a whole new standard of security and integrity of a large network system. It has simply set a new bar creating a new paradigm for a system of fairness and accountability.
It’s important to note that the reason why Bitcoin is valuable is that we give these little digital rare tokens context as being money. Otherwise, they would just be rare digital tokens.
A consensus is what gives any kind of monetary value, the users in the system essentially choose that it is valuable. (having a centralized consensus system is one of the biggest flaws the fiat money possesses).
It also important to mention that the Blockchain has allowed for infinite new possibilities of what can be contextualized into a value transaction(able) system. Blockchain can tokenize, approves and timestamp data, to make this data the best kind of money.
The next question is what context can we now give to this data to create new systems of value? Systems of value that were never before plausible.
What are the new applicable uses of a Blockchain token system?
A good question to then bring in is what is valuable to humanity, to people, to our society? How do we improve the quality of life?
What social development efforts are being made right now? How can Blockchain help to improve and scale up efforts?
What we know is that consensus turned little pieces of data into money because we all said so.
Now we can turn little pieces of data into valuable social development tokens and it can be something better than just money.
WILL BITCOIN EVER REPLACE FIAT CURRENCY?
When you get major retailers (i.e. Amazon, Walmart, small shops, etc. plus credit card companies) accepting BTC (or other Altcoins) as payment for actual goods and services, then it’s possible for Bitcoins/Altcoins to replace FIAT currencies.
If the OPEC countries take BTC in exchange for Oil, the dollar is dead. The moment Oil is sold in BTC by any of the G20 is the moment the US Dollar is effectively dead.
The road to acceptance is a long and hard one. For the time being, we don’t have enough payment processors that makes Cryptocurrency attractive enough for any retailer to use. If someone creates a credit card company based on Bitcoins (or Altcoins) and is able to cheaply & quickly process payments, then we will quickly see FIAT currencies fade away.
Your average “Joe” is accustomed to using FIAT currency in exchange for goods. But if “Joe” can use BTC (or XRP, for example) to keep a roof above his head and food on the table, then we will quickly see FIAT currency (as we know them today) become quickly replaced.
China now deals with Russia using the yuan for many Oil contracts, so we can see the power of the US dollar slowly fading away. it may take a while, but this has to happen as blockchain takes over the world in a myriad of different ways and cryptocurrencies flow into the mainstream which could end central banks control and thus end USD being the default globally traded currency.
Look at it this way. Fiat currencies replaced gold in the past. Nobody uses gold for their everyday purchases anymore. However, the price of USD or any other fiat currency can be measured in gold still. At the time of writing, 1 US Dollar is worth 0.0008 ounces of gold.
Therefore, bitcoin being compared to US Dollar isn’t a barrier to bitcoin replacing fiat, as most people would think.
How high/ low can bitcoin go?
The world is perceived to be dollar-centric in nature, so things tend to be measured in dollar terms. Right now, Bitcoin is gradually being used as a currency, but accessibility, slow transactions, and excessive transaction fees make it difficult to use as a currency). Right now, Bitcoin is mostly used as a store of value, much like gold.
I believe that if any of these things happen, Bitcoin will appreciate relative to the dollar.
1. Some mechanism for a fast transaction (such as Lightning Network) is implemented.
2. Bitcoin Visa/Mastercard, (like what TenX is trying to do.)
3. Blockchain technologies get implemented in greater numbers.
4. If the US Dollar loses world reserve currency status, Bitcoin will definitely appreciate its value relative to the dollar.
If any of these happen, Bitcoin will depreciate relative to the dollar.
1. Major bugs are discovered in the default Bitcoin implementation, allowing hackers to easily steal Bitcoin.
2. Major Bitcoin exchanges get hacked or are discovered to be poorly run (like a repeat of Mt. Gox in 2014).
CONCLUSION
So, what will happen in the future? No one knows because the future is opaque…Having said all that, I am very confident that Bitcoin will continue to see steady price increases (with the appropriate corrections for profit taking) for the next few years. Right now, I do not think we are anywhere near a bubble, as I believe we are in the early stages of a revolution as big as the internet itself.
Value is given to something as long as they are considered useful and unique. As long as bitcoin can manage these characteristics, it will have value.
Whether that means up or down is not up to bitcoin, but to external conditions like competition and the general global economy.
What do you think of the value of bitcoin? Let us know in the comments section below.
