Bitcoin Value: Is It Reliable?
As much as Bitcoin lovers talk about how great this virtual currency is, there are just as many skeptics questioning where the value of Bitcoin comes from. Why should we trust the Bitcoin value at any high or low rate? What’s behind the currency that affects the current value of a Bitcoin?
These are important questions to answer, as a better understanding of these mechanisms will highlight how reliable the currency is. Just like any currency, it is this reliability that many investors look for before using Bitcoins.
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What Factors Contribute To Value?
As of July 2016, Bitcoins are worth approximately $660 US dollars. Needless to say, this is a large amount of value placed on a single unit of currency, so where does this value come from?
The easiest way to explain Bitcoin’s value is to equate it to something else with perceived value, such as gold. Gold is valuable for a few reasons: rarity, durability, desirability, mobility. Most world currencies were, at one point or another, backed by a gold standard, meaning the currencies could be exchange for gold. While that’s not the case anymore, why is gold still so valuable and how does that relate to Bitcoins?
Gold is assumed to be a finite resource, because there is only so much that will ever be found in the Earth, although we don’t know much the total is. Rarity creates value, so this is one point towards increasing the value of gold. Gold is also durable, meaning it will last for generations upon generations. There are still gold relics discovered from ancient civilizations. That’s one more point towards improving its value.
Furthermore gold is mobile, in that it can and has been moved around the world for thousands of years. Lastly, gold is desirable. While other metals fit the previously mentioned criteria, they are not always as desirable as gold.
Bitcoin Rarity And Values
Bitcoins have all of the characteristics of gold, accept that they exist in the virtual world. Bitcoin value comes from the fact that every Bitcoin is rare, durable, mobile, and increasingly desirable.
The rarity of Bitcoins exists because they are mined using a special software. The rate of new Bitcoin creation is cut in half every 4 years or so, making them increasingly rare as time goes on, just as gold becomes rarer every time a mine is exhausted.
Bitcoins are also durable, as they exist in a virtual world as a set of unique codes. As long as you have the codes, you own the coin permanently until you transfer ownership. They are also mobile, as they can be transferred to anyone around the world almost instantly, and they are becoming very desirable by adding value to the users of Bitcoin.
How Bitcoins Add Value to Users
The desirability of Bitcoins comes from the fact that they make money transfers much easier and cheaper than they currently are from other online institutions. Credit/debit card transfers, international money transfer services, wire transfers, and a majority of existing payment services add fairly substantial fees onto the sender, receiver, or both. Transfers can also take a long time to complete, especially internationally.
However, Bitcoins can be transferred to any location around the world in around 10 minutes or less with little or no fees applied to the transaction. This makes them a more valuable currency to most users because they are adding value to you by helping you save money on your transactions.
Future Bitcoin Value Predictions
It’s difficult to predict how the Bitcoin value will increase or decrease over a certain period of time, because it is still a more volatile monetary source than many traditional currencies.
All things considered, it is likely that Bitcoin will remain very valuable and steadily increase in value as time goes on. For the value to remain constant or increase, trust in the Bitcoin system must be maintained. If the Bitcoin community can maintain a high level of trust in the system, the Bitcoin value seems destined to continue rising steadily for years to come.
Needless to say, while this is never guaranteed, this would make it an ideal time for investors and other interested individuals to consider entering the Bitcoin market. Now that you understand how Bitcoins generate and hold their value, you can better interact with the wider market.
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