selective focus photo of Bitcoin near monitor

What gives Bitcoin Value?

“Bitcoin and other digital currencies have been touted as alternatives to fiat, but what gives ANY type of currency value?”

Store of value means holding value without losing that value (depreciating) Silver, Gold, Platinum and other precious metals are assets that hold their value perpetually, however something like milk, eggs, etc. are not good examples because they would deteriorate and decay. Such things as Treasury Bonds or (T-bonds), are very good examples of stores of value because they also generate income and their principal balance has a legal contract.

Many countries issued minted coins of precious metals to represent currency . Minted coins held their values well because they were made of precious metals and for this reason were used all over the world as a representative of value. It became, to say the least, “cumbersome” to carry heavy coins to use for trade so governments started issuing “paper currency” backed up in value by these precious metals.

The monetary system that fixes their currency value on the value of Gold is known as “Gold Standard”. “A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.” This WAS for the most part, the system the world used up until the 1930’s when England went off the system and the USA followed in 1933 and the remnants were totally abandoned in 1973 in the USA.

Enter the “Fiat” system.

The gold standard was completely replaced by fiat money, a term to describe currency that is used because of a government’s order, or fiat, that the currency must be accepted as a means of payment. In the U.S., for instance, the dollar is fiat money, and for Nigeria, it is the naira.

The reason given for a switch to “Fiat” currency was that governments were afraid of a “Run” on precious metals supplies.

If anyone gives you the argument that Bitcoin is not worth anything because it is not “backed” with anything of value, do you know now that by that judgement, neither is “Fiat’ currency?

It is HIGHLY likely now that you have or still do use electronic currency as a payment method. (Think Credit cards, Bank debit cards, etc.) which are not backed by anything but faith that this will be accepted as currency by governments, retailers and individuals. Today most governments have adopted “Fiat” currency systems.

Traits of Money:

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For a currency to be successful it must meet certain qualifications related to scarcity, divisibility, utility, transportability, durability, and counterfeitability.

“To assess Bitcoin’s value as a currency, we’ll compare it against fiat currencies in each of the above categories.” https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp (Here you can read points that are in addition to the question as to “Store of Value” such as  scarcity, divisibility, utility, transportability, durability, and counterfeitability.)

Bitcoin holds up well in each category but is weakest in the Store of Value. With the adoption of Bitcoin that is happening world-wide this may very well soon become a strong point. However MASS adoption, this writer, sees as KEY for Bitcoin and indeed other Crypto-currencies to be successful.

Investopia at https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.as says: …Our total estimate for global value of mediums of exchange and stores of value thus comes to 72.1 trillion U.S. dollars. If Bitcoin were to achieve 15 percent of this valuation, its market capitalization in today’s money would be 10.8 trillion U.S. dollars. With all 21 million bitcoin in circulation, that would put the price of 1 Bitcoin at $514,000.  THIS of course remains to be seen.

https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp

About the author

Gail holds one of the most challenging role in the Compumatrix Leadership: Membership. She ensures that that members and potential members enjoy the benefits of being part of the Compumatrix community.

Comments

  1. I like the chart on the Traits of Money. As a country, I think we have run out of time with “Fiat”. This is why I believe we will go back to the Gold Standard. However, sometimes there is relativity in the phrase: “too little too late”. The 2008 Market Crash showed us the need to change and Bitcoin was born during that time. In 12 years, we stayed with Fiat not correcting the errors that led to that crash. This further strengthened the need for “People’s Money” or Crypto Currency. I think we will run on a 2 system monetary base.

  2. Good article. Love the “Traits of Money” chart. Yes, thanks to President Nixon back in 1971 who ordered that our USD (fiat) would no longer be backed by gold, the American people and the world have just been living on the fact of TRUST for buying and receiving USD fiat. It’s backed by nothing. If I went to a government agency, and tried to turn my paper money in for any amount of shiny gold, they would laugh me out of the office. Bitcoin’s price today is where it’s at, because more and more folks are putting their trust in it.

  3. If one take into consideration how many bitcoins that are already lost for good (send to incorrect, unexisting addresses, or those in wallets whose keys were lost, and so on), then It’s probably going to be a lot less than 21 million bitcoins in circulation.
    The supply is experiencing deflation which means that there are going to be increasingly fewer Bitcoins available.

    1. That is an excellent point Bjorn. I often try to explain to people that one of the powerful features of Bitcoin is that is has “Programmed Scarcity” and how that is a foundation for increased value over time. But as you have pointed out the supply is being reduced further by lost keys and sending errors. To add to that, every now and then we see stories about early miners who had significant amounts of Bitcoin on computers that were thrown away in the early years before they recognized the true value of what they had. On top of all of that the lost keys and sending errors will continue, because many people don’t pay attention to detail and they have poor security habits. Wow! So I agree 100% that there will be far less than 21 million Bitcoin and that IMHO is a good thing.

  4. what an awesome article — post — blog posting i guess is proper — I just read this article twice and the couple replies and it is great stuff — I have to read and study more truly because so much great information is right here right now to stay on top of the Truth and stay in front of the curve — at least i hope so —

  5. The information presented in this article is a great contribution to the series and to the blog overall. The Traits Of Money chart is helpful for people to be able to visualize and compare the strengths of Bitcoin to fiat currency and precious metals. I like that very much!

    I’m glad to see several links there so that readers are able to easily access more information on different areas of the article. I look forward to reading this again and visiting those links when I have more time. I never get tired of learning more about Bitcoin and other cryptocurrency. It is all very exciting to me!

  6. Gail this is a great article with valid points to use in discussions. When trying to explain bitcoin to others I have mentioned that our Fiat is not backed by gold. Many people are not aware of this point. They have actually looked it up to see if I was correct or not. They are amazed that trust back’s fiat. It makes for a very interesting conversation around bitcoin. It also makes them very curious and they usually want to find out more which is great!

  7. Si, estoy de acuerdo que esa tabla de Rasgos del dinero me ayuda a visualizar Bitcoin contra el Oro y Moneda fiduciaria .
    Y donde se observa Soberano (emitido por el gobierno) BAJA . Es precisamente lo que Satoshi Nakamoto predendio que asi fuese. Quitar de las manos de gobiernos y banqueros y hacerse decentralizado alta
    Ahora porque es decentralizada no obedece a las reglas de centralizacion y el valor lo pone cada uno de nosotros. Ademas por que solo va haber 21 millones de Bitcoins , esto lo hace mas atractivo por su escasez , ORO moderada, Fiat Baja y Bitcoin Alta
    Cuanto vale el Bitcoin para usted ? Cuanto por CBTC? Que tal por Compuceed o Cryptoceed
    Espero que cuando volvamos a CDAP y DEX recordemos que esta en nuestras manos ,el valor de las monedas

  8. Gail you are a true professional blogger.Your post about what gives Bitcoin value is very well explained with the comparison to the Fiat system and specially the table of Traits of Money has spelt is out in greater detail.Thank you for helping us learn more about Bitcoin and Fiat.

  9. excellent reply Zulqifar and do appreciate yours and the others replies to a great blog posting by Gail — there is so much great information in her blogging and when you go around and read more of her work You can learn so much and get more and more prepared for Our Future here — thank you to all —

  10. In reference to Bjorn’s and Kevin’s comments above, some estimate about 4 million Bitcoin are already lost. When you consider 1 Bitcoin is divisible into 100 million Satoshis, the lost will not hurt the currency. Using the value above (with 21 million figure) of $514,000.00 for the value of a Bitcoin, the value of 1 Satoshi would be 1/2 a cent. This would be easy to work with using Satoshis instead of Bitcoin for low priced items.

  11. This is a wonderful blog full of information and a very good explanation of how it all works. The old school people all need to read this and let it sink in because it is happening. I think it will be for the better because of the corruption within the fiat system.

  12. Thank-You, This blog has helped me to finally understand how bitcoin works and how it holds its value and all works together. The charts are very educational and informative to learn the history of value of bitcoin. I can also understand how the fiat system will not work forever and is corrupt to say the least.

  13. Giving value to anything is in the control of the people. A community involvement, for instance, the demand or scarcity of an asset like gold or certain cryptocurrencies will create its value. Gail’s explanation along with the visual chart allows for an overview that puts it all into perspective. Showing the trait comparison between Cryptocurrency, Fiat and Gold presented a clear cut explanation that is easy to understand no matter what level a person is at in their understanding of the differences between each.

  14. I appreciate the acknowledgement Zulqifar — You truly are welcome — and I again make the point that this is a great Blog and the replies from all are good reading — I also seriously have to make this point as i grow here and learn to operate my own online international business and whether its BTC or Ethereum or Compucoins ?? point is as a Business Person and an International Business person we must here figure out how to communicate Truthfully between all of us — I look forward to the Growth within ALL of US here — rjh

  15. I enjoyed seeing the “Traits of money” chart, but what really struck me about this article was the title, “What gives Bitcoin Value?”, to me that evoked the thought of “what gives anything value?”. A group of people must decide what gives someone or something value, whether it is the government, a family, or a business. Why do some lawyers get paid more than others? They are considered more valuable by their firm for their services. Their employers and clients give higher paid lawyers more value than lower paid lawyers. Why did a dollar buy someone a pound of coffee back in the 1900s, but a Starbucks drink costs at least five dollars today, if not more? Because of inflation caused by the government, in simple terms, a dollar does not hold the value it did back in the 1900s. Currently, society as a whole gives a Starbucks coffee the value of five dollars. Some people, like myself, do not buy Starbucks coffee because they do not see value in it. Based on the chart above, Bitcoin has the potential to be very valuable, but society as a whole must decide just how valuable Bitcoin is; therefore, I believe society as a whole gives Bitcoin value.

  16. so much value in anything is truly how much the people make that value — if no one considers this or that to be important to them then that particular whatever is not around long — but if a bunch of people find something so valuable they will focus on that particular then most often throughout history that has become a significant part of that time frame– but realize how fast things and ideas change throughout history — can not become complacent and rest on laurels — change will eat you a new lunch — jmho rj

  17. Bitcoin was first given value by people or a community who decided to accept its form and features Over the years following the law of supply and demand, the bitcoin community has grown and transcended nationality, race, and religion. After testing the waters, altoins came on the scene also in a bid to gain community acceptance. I see this as a big opportunity for Compumatrix and its ceeds, don’t you think? We just need to enlarge our borders some more.

  18. The simple answer is that the people give bitcoin value. Since bitcoin is decentralized, the only people that control the price are the people who buy and sell bitcoin and the people who mine bitcoin. The “Traits of Money” chart was very interesting to me because I find that some people do not think of crypto as real money, but seeing this chart would help aid them in realizing crypto (bitcoin) is real money – more people need to see this chart!

  19. keep reading and learning — it is so important to me anyways to understand more n more of the details involved and i smile outloud if the Bitcoin was to reach that universal acceptance part and achieve that portion of the US economy and value of $514,000. — would not that be oh my gosh — keeping it readable —

  20. I am very much looking forward to using Bitcoin instead of our fiat currency. I do not fully trust our bank’s intentions to replace our currency with our own manufactured digital currency. Although Investopedia predicts such a high value for Bitcoin I would be happy with a fraction of that amount.

  21. Nicely done blog Gail.Explanation of differences in the chart traits of Money was extremely useful for me and I see that lots of my other friends felt the same way.Crypto currency is the wave of the future ,not sure how long it will take to be accepted by all and will take hold as part of doing business and conducting all our transaction with with the cryptos.

  22. Wow, $514,000 for a bitcoin is a phenomenal concept. Will it happen? Who knows. So much has happened the last five to ten years, anything is possible. There is a hint now and, then that bitcoin will get to $100,000 before the end of the year. It better hurry up. There are challenges in this world from the antics of bankers. Through the needs of the people, cryptocurrencies become an avenue of economic stability. These needs may set a precedence, and becomes what will trigger the value of the cryptocurrencies. As you say, Gail, gold, and silver hold their value. These medals of surety are manipulated by those in charge of our countries finances. Bitcoin is still around and becoming a more stable source of financial freedom and not in control of the economic hierarchy.

  23. there is just so much good knowledge to be ascertained here by reading these great blog posts and with me I need to read a few times for it to sink in — lol — but it truly does make this Cyber Crypto World we are a part of much simpler to start to grasp all the nuances and unknowns of these worlds — thank you again

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