In principle, the price of Bitcoin determines the cost of mining, not the other way around. There is no intrinsic value based on the electricity cost of the mine. Very simply, people go mine if it’s profitable. Those whose electricity prices are too high will drop out. Mining follows the price in bitcoins, not the other way around. In economics, one thing has value if it ticks the two following boxes: scarcity and utility. Scarcity simply means that something has a finite supply. In the case of bitcoin, cryptocurrency has a maximum limit of 21 million bitcoins. Many analysts note that this fixed limit makes Bitcoin more desirable than other assets, even gold. This is because, unlike gold, there is no need to worry about the digital gold rush. A treasure of bitcoins will never be “discovered”, which will bring down the price with an influx of customers. Many believe that the value of cryptocurrency lies in its potential to be a more efficient commodity than we already have. It can be difficult to consider that digital currency has value because you can not keep it in your hand like a dollar bill or gold. Anyone who thinks that digital gold is not valuable forgets the fact that most current businesses rely on digital trust, including the financial system. It is clear that some people believe that bitcoin has value. And if it is valuable, it’s hard not to wonder how much a bitcoin might be worth. The main value proposition of Bitcoin is an apolitical reserve of value and medium of exchange. This means that monetary policy is defined by consensus rather than bureaucrats and that no one can censor certain types of transactions on the network. The value proposition here is that bitcoin exists simply as digital currency rather than being subject to political influence by third parties.
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