When it comes to Bitcoin, there are a lot of questions that people often have. While many people have heard of Bitcoin, there are still lots of people who don’t really know how it works. One of the most common questions people ask pertains to its value. Specifically, why does Bitcoin have value, and what causes its value to fluctuate? Well, another way to look at it is, why does paper money have value? There are many people who still think that the value of the paper money we use today is backed by gold in Fort Knox. This is not the case. The US hasn’t operated on the gold standard in quite some time. Paper money has value because people have faith in it. Bitcoin is very much the same. Bitcoin has value because of the faith people place in it as well. Now, we are going to take a closer look at Bitcoin, why it has value, and what this means.
Bitcoin and its value have been the topic of many discussions, particularly since Bitcoin has risen in popularity during the past few years. Furthermore, the price of Bitcoin fluctuates much faster than most stocks that are traded on the New York Stock Exchange. This is a point of confusion for many people. Therefore, the Bitcoin value can be a hard thing to pin down. While this isn’t really a function of the benefits or drawbacks of Bitcoin itself, it is, instead, a function of how the people who use Bitcoin define its value. In general, the biggest question is, why does Bitcoin have value? How is its value judged? Is this value correct and what does this mean for the future? Bitcoin has been analyzed by many people who study finance for a living and they often confuse value with price. These two are not necessarily the same thing and they need to be examined in detail.
Defining the Term Value
One of the first issues that has to be addressed is the definition of value. There are lots of people whose mindsets are filled with shortcuts that might cloud people’s judgment. Therefore, in order to have a conversation surrounding Bitcoin and what its value means. First, the definition of value can be discussed as:
- Value is the worth that an item or entity, such as Bitcoin, has
- Value does not mean price
- Value is not the same as the utility of the object in question
- Instead, price is an expression of the public’s sentiment of the value of something specific
- Utility is an expression of how useful something is to someone and is also not an expression of its value
Therefore, while there is a relationship between an object’s value and its price or utility, value is a more objective measure and will not change with the public sentiment; however, the value of something will change if the fundamentals of its assets change. For example, as the economy of Venezuela disintegrates and people look for something else, Bitcoin is going to have a higher utility there than it might in the US; however, this doesn’t mean that Bitcoin is more valuable there than it is here. It simply means that Bitcoin will be more useful there. As a result, the price of Bitcoin is going to be higher in Venezuela than it might be in other parts of the world. This is a brief overview of how the value of Bitcoin should be discussed.
The Value of Bitcoin
So, the next point that people want to discuss is why does Bitcoin have value in the first place? The virtue of Bitcoin will not change depending on who uses it or where they use it. Instead, utility and price are the factors that will change. The bottom line is that Bitcoin will offer the same objective virtues to people anywhere in the world, regardless of where they are located. Therefore, Bitcoin is valuable because it provides people with a way to engage in economic activities without having to rely on any intermediary sources. The virtues of Bitcoin itself are underpinned by a network that has been both decentralized and distributed. This means that it cannot be censored in any way, such as by a government that decides to print more money. There is a firm supply behind Bitcoin and this is limited, keeping inflation to a minimum. This allows people to know how and where they will enter the monetary supply. This means that there is no fiat currency. These are the biggest reasons why there is an actual value behind Bitcoin itself!
In the end, there are still a lot of people who are worried that the economy might not be able to continue working like it does today. They see the government printing more money and they have visions of Germany after WWI floating through their head. This is exactly what is happening in Venezuela; however, for those that are worried that something might happen to their economy, Bitcoin offers a sort of respite to get away from all of this fear. There might be a greater utility to Bitcoin in the future if something happens to the global economy; however, right now, the utility of Bitcoin is what it is. Even if this utility increases in the future, the value of Bitcoin is still going to be the same. With this in mind, Bitcoin acts as a powerful hedge right now, allowing people to enjoy the freedoms that it provides while also protecting their assets in the future.
Assessing the Value of Bitcoin in the Future
This is a very brief overview of why Bitcoin has value. The definition of value is not the same as price and utility; however, the latter two can change over time. It will be interesting to see how Bitcoin continues to progress in the future, as more people start to learn about the cryptocurrency market and how it might impact them. Bitcoin has a bright future ahead of it.