As In the midst of Bitcoin’s price surge on the global market, speculation that it is a bubble has also risen! This tweet very well illustrates what a bubble is, however we are not certain it is a bubble.
In the last few years, people around the world have begun asking themselves questions. What is the actual value of the Bitcoins lying in their online Bitcoin wallet and where does the Bitcoin price come from? Where does its value come from?
These are normal questions that come up but rarely are addressed or at best are poorly answered.
How Is Bitcoin Value Decided?
Bitcoin’s value depends on many factors. Here are some listed below.
There Are Many Aspects Of Bitcoin That Are Comparable To Gold
Like gold, Bitcoin is a sound money by birth. Its characteristics are:
- Positively accepted – The medium of exchange is widely accepted.
- Influential – A unit is equal to another unit.
- Equal – The value of the same amount is the same in all versions.
- A division can be done – Value can be subdivided into smaller portions.
- Availability is limited – Continuous and restricted availability.
- Long-lasting – Useful for a long time without deterioration.
- Portability – It is transferable and can be traded.
If you open your eyes and look around, you will see that fiat currencies around the world do not meet these criteria well, while Bitcoin and Gold do it in an accurate way.
Supply & Demand
In the same way that commodities and forex markets have their markets, Bitcoin also has its own. Similarly, Bitcoin’s value is determined by the demand and supply on the market.
As of now, humans do not have any way to measure the Bitcoin value in a more complex way. The last few trades and their moving averages are often used to calculate it on exchanges. It is also not possible to calculate the moving average and last traded price, so the prices on different exchanges may vary.
Due to its practicality and networking potential
Transacting free of intermediaries is very easy with Bitcoin. It offers the most efficient means of engaging in p2p transactions without a significant lag since your transaction only takes 40-60 minutes to complete.
A huge advantage of Bitcoin is that there is a network effect, which simply means that as more and more users join, the platform becomes more valuable. For instance, a fax machine may become more valuable as more people use it. For this example, suppose that only one fax machine exists in the world. How valuable would it be?
So In theory and in practice, the more people join something that is already useful, the more useful and valuable it becomes.
Introducing Bitcoin’s Smart Contracts
As more and more people come up with new ideas and possibilities about Bitcoin every day, its value might have been measured in cents in the early days.
In case you don’t know, Bitcoin has smart contract features that conventional money cannot match without trusted third parties, which is another reason for its high value which is only increasing at a rapid rate.
Is Bitcoin worth its true value?
Because there is no standard way to measure BTC, it would not be fair to price it in USD or EUR.
Due to the innumerable developments in and around Bitcoin, it will, however, be much higher than it is now. The following developments will contribute to this:
- Bitcoin ETFs will be launched
- Trading in futures markets
- A lightning network that lowers fees and facilitates transactions.
- Smart contracts are enabled by RSK, a Bitcoin project.
Using Bitcoin to escape the traditional banking system was a clear decision by Satoshi Nakamoto when he invented it. It is the complexity of the invention that makes it difficult to calculate or estimate Bitcoin’s value.