6 Reasons Why Bitcoins Are So Valuable

6 Reasons Why Bitcoins Are So Valuable

Bitcoin is a decentralized network with a transparent set of rules that allows for efficient money transfers over the internet, making it a viable alternative to central bank-controlled fiat money.

However, it is necessary to take a step back first. Bitcoin and other digital currencies have been promoted as fiat money substitutes. But what determines the worth of any currency?

Why Are Currencies Valuable?

Currency is available if it serves as a store of value, or if it can be relied on to keep its relative value over time and without depreciating. Commodities or precious metals were used as payment in many cultures throughout history since they were thought to have a reasonably secure value.

Rather than requiring individuals to cart around large amounts of cocoa beans, gold, or other early types of money, communities gradually shifted to minted currency. Many examples of minted currency were still available because they were durable stores of value, made of metals with long shelf lives and little chance of depreciation.

In today’s world, minted currencies are often in the form of paper currency, which lacks the inherent value of coins made of precious metals. Individuals, on the other hand, are more likely to use electronic currencies and payment methods.

Some currencies are “representative,” indicating that each coin or note may be directly exchanged for a certain quantity of a product.

Scarcity, Divisibility, Utility, and Transferability

A good currency must meet criteria related to scarcity, divisibility, utility, transportability, durability, and counterfeitability, in addition to the question of whether it is a store of value. Let’s take a look at each of these characteristics one by one.

1. Scarcity
The availability of a currency is crucial to maintaining its value. A larger money supply could lead to a spike in the price of goods, resulting in economic collapse. An insufficient money supply may also trigger economic problems. Monetarism is a macroeconomic principle that focuses on the role of money supply in an economy’s health and development (or lack thereof).

Most governments around the world continue to print money as a way of managing scarcity in the case of fiat currencies. Many governments use a predetermined level of inflation to keep the value of their fiat currency down. This rate has traditionally been about 2% in the United States. This is in contrast to bitcoin, which has a variable issuance rate that fluctuates over time.

2. Divisibility
Currency that is effective is divisible into smaller incremental units. A single currency system must have the versatility associated with divisibility in order to act as a means of trade for all forms of products and values within an economy. The currency must be sufficiently divisible to accurately represent the value of all goods and services available throughout the economy.

3. Utility
In order to be efficient, a currency must have utility. Individuals must be able to exchange currency units for goods and services with confidence. This is one of the main reasons why currencies were created in the first place: to allow market participants to stop bartering directly for products.

Utility also necessitates the ease with which currencies can be transferred from one place to another. This stipulation is difficult to fulfill with heavy precious metals and commodities.

4. Transportability
To be useful, currencies must be easily transferable between participants in an economy. In terms of fiat currency, this means that units of currency must be transferable both within a country’s economy and across borders through exchange.

5. Durability
A currency must be at least relatively durable in order to be reliable. Coins or notes made of easily mutilated, damaged, or ruined products, or that degrade to the point of becoming unusable over time, is insufficient.

6. Counterfeitability
In order to remain competitive, a currency must be both durable and difficult to counterfeit. Otherwise, malicious parties could easily disrupt the currency system by flooding it with counterfeit bills, lowering the value of the currency.

Conclusion

Different governments have very different perspectives on Bitcoin, and the implications for Bitcoin’s acceptance as a global currency are important. As opposed to fiat currencies, Bitcoin performs admirably in all of the aforementioned categories. So, what are the issues that Bitcoin faces as a currency? Leave your thought below!

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