What Makes Bitcoin Valuable?
Blockchain technology is used to create cryptocurrencies, specifically bitcoin. In 2009, an anonymous creator given the name Satoshi Nakamoto developed bitcoin in an attempt to combat the traditional monetary system of many developed nations. It is a peer-to-peer network for a digital currency that has a limited supply of units.
Bitcoin is the first decentralized digital currency introduced to the world, and it has no ownership or affiliation to any form of government. It can’t be exchanged physically because it is entirely online. It has no ties to a banking system, and transactions are entirely anonymous.
Users access their account on a smartphone from any location on the planet that has Wi-Fi and instantly transfer funds to the desired location. Bitcoin has no physical or political restraints tied to it.
Who Sets Bitcoin’s Price?
The traditional view of money is that it must have a medium of exchange, unit of account and store of value. These functions of money have built up the monetary system most countries use today.
However, bitcoin is breaking the mold with a digital currency that is entirely free of government control. How does a borderless, nongovernment-backed, apolitical currency determine the price of a unit?
The supply and demand of the market determine the price of bitcoin. Users trade on the Luno Exchange, and they set the price. The current utility of the currency, as well as the potential future value, is how it’s determined.
How Does Bitcoin Maintain Value?
Bitcoin currently has just over 16 million units in circulation, and the maximum amount that will ever exist is 21 million. Bitcoin is scarce because it has a set amount of units in circulation. It also has utility, because each unit is the same, divisible and verifiable through blockchain.
The ability to be used as a form of payment, to store wealth and be transferred from one user to another makes bitcoin valuable. There is no other digital currency that is as widely used and accepted as bitcoin.
Its mixture of scarcity and utility make it a valuable asset that can be used internationally without any exchange rate needed. The fact that it is widely used and traded without any form of government backing to support it is where bitcoin derives value.
How do Investors Interact With Bitcoin?
Environmental, social and corporate governance fund management strategies, also known as ESG-focused funds, look at buying into everyday companies that are run well.
ESG funds move away from the traditional investment strategies of tobacco, alcohol, gambling and other big companies. A study taken of Morningstar’s 56 unique ESG funds shows they outperform non-ESG counterparts 73% of the time.
Blockchain, specifically bitcoin, is an ESG investment that is growing in popularity. Bitcoin is a form of currency that is apolitical, which provides stability for investment funds because they don’t experience the recessions that traditional monetary systems go through.
Blockchain technology has a tremendous upside for investors, but it is worth noting that bitcoin can be volatile and does carry risk since a government does not back it. Luno Exchange has a bitcoin price tracker and calculator that is beneficial for investors to use.
Fiat Money vs. Bitcoin
The benefit of fiat money is that a government has backed its value. However, it is that same benefit that can create a problem. Governments hold power to print money at will, devaluing the worth of the monetary unit within the country.
Governments manipulate fiat money through inflation, which devalues the units in circulation. Bitcoin’s set amount of units allow for it to have a stable value. It does not rely on any government or world power, which lets it function without bias or agenda backing it.
Bitcoin is also flawed. The total market cap of all cryptocurrencies is currently at $284.6 billion. The amount of cryptocurrency needed to supplement what’s already in circulation is a considerable amount. Cryptocurrency also has no barrier for entry into the market, which could cause it to become saturated.
Bitcoin is here, and it has a lot of potential, but it has a long way to go before it becomes part of the mainstream. Thankfully, the future of this cryptocurrency looks bright.
