Can Bitcoins Become Worthless?
All mechanism for the exchange of goods and merchandise for some kind of token value is based on three things: trust, demand, and supply. The value of any asset can be measured considering the said dimensions. What would need to happen in these three aspects to put Bitcoin in danger of losing all its commercial value? This article ventures to name some sources that could make Bitcoin lose all their commercial value.
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For a token to be recognized as a value exchange instrument, it is necessary to trust that there is an efficient mechanism for this. One of the Bitcoin milestones is its safety and transparency of all transactions made through the network. Security, because there are several locks to prevent fraudulent transactions. Transparency, because all transactions are public and can be audited by any interested persons.
In the event of an incident that results in people questioning Bitcoin’s security, for example, this would shatter Bitcoin reliability. When people do not see Bitcoin as something efficient to represent the value associated with it, this value automatically ceases to exist. Thus, the fall in confidence throughout the Bitcoin proposition would make it lose its value.
Under normal conditions, when a product or service is well executed, there is demand for it. When a currency is widely accepted, the demand for it increases. When an asset is perceived as safe, it is also demanded. The Bitcoin as a model can be represented as an asset, currency or means of payment. If there is demand for some of these aspects of Bitcoin, it has value.
For some reason, if there is not a more widespread adoption of Bitcoin as payment, for example, its market value may fall. This drop would affect those who see Bitcoin as an asset and they may want to get rid of it. It also impacts those who use Bitcoin as a currency, because they will have more difficulty trying to use it. This could trigger a lack of interest in Bitcoin, which would result in a large drop in interest of it (better known as demand). This scenario would generate an excess of supply, dramatically reducing the value of Bitcoin.
When too many people want something, the value of this thing tends to grow. So apparently it is a good thing for those who already have this thing to wait for more people to become interested so that it can be further enhanced. But if this asset is becoming more and more scarce, and more and more expensive, the amount of people willing and able to buy it decreases. This prevents it from an eternal value rise, but would it be able to make its value end?
The people who own this store actively decide not to sell that asset. They believe that its value will continue to rise, and it becomes unavailable on the market. And what is unavailable, effectively has no value. All would like to buy a lamp with a genie inside who would grant us three requests. Many would pay all you have to buy this lamp, but as it does not exist, no money is actually spent. And demand, in this case, is fictitious.
In the case of Bitcoin, if people stop trading, or use Bitcoins to buy goods, their processing network no longer has reason to continue working. The demand, which at first would become high, disappears soon after. A too low supply of Bitcoin can invalidate it as currency.