What is the reason for the price of bitcoin
The innovation of technology and the rapid growth in the value of Bitcoin have raised an unprecedented excitement around cryptocurrencies. Many experts call cryptocurrencies the money of the future, but meanwhile, on the network you can find many incriminating materials that claim that Bitcoin is nothing more than a soap bubble. The main argument of skeptics is the lack of material support. In order to understand how justified such allegations are, you should independently understand what is the reason for the sharp increase in the cost of bitcoin.
Bitcoin is not regulated by anyone, is not tied to the state economy and does not even have a physical embodiment (coins are also not always real Bitcoin), however, its value is constantly growing over long periods of time. First of all, this is caused by an increase in demand and popularity, as well as innovative technology, which is based on cryptography, which ensures decentralization, anonymity and a high level of protection.
The value of bitcoin is determined by market conditions, that is, the ratio of supply and demand in the market. In other words, the more bitcoin is in demand, the higher its value, and the price drop is often justified by an increase in the number of coins on the market at a time when large holders are selling assets or the level of confidence in cryptocurrencies decreases.
Many people mistakenly believe that the cost of bitcoin is determined by calculating the resources spent on its extraction, that is, the quantity and cost of electricity, but this is not entirely true.
In order to understand what the value of bitcoin is justified, we can draw an analogy with the evaluation of valuable metals or materials. For this, experts name three evaluation criteria:
- Production cost;
- Assessed value;
- Market price.
For example, the rarest mineral is painite. It has no practical value, is not used as a payment, but thousands of dollars were spent on his searches, and only a few samples were obtained. A gram of crystal is estimated at 9 thousand dollars, while its value is determined by how much resources collectors are willing to give for curiosity. About the same with Bitcoin, only it, unlike Payne, also has practical applications, is useful and necessary for many users.
Comparison of Bitcoin with regular money
Cryptocurrencies have no material embodiment, and people tend to distrust the intangible, so at first glance ordinary money may seem more reliable.
The fiat currency is supposedly limited in emissions in accordance with the gold reserves of states and their economic situation. If we take the Russian ruble as an example, then in theory its value should be equal to the gold and currency reserves of the Central Bank, but in fact the government has the right to issue emissions on any scale, determining it independently on the basis of GDP and other economic indicators. Similarly, with the US dollar, which lost its binding to gold more than 40 years ago. The dollar exchange rate determines the US public debt, which in turn determines Congress.
To date, there is not a single state currency in the world that would be provided with gold reserves. In other words, the issue of currencies is limited only by the government on the basis of indicators of an economy that is interested in containing inflation, but there is no clear mechanism for limiting emissions.
Therefore, the main difference between bitcoin and fiat currencies is its organization, which provides emissions. But criticizing Bitcoin for the lack of gold reserves, it should be understood that by providing fiat currencies with gold is meant only a temporary restriction in emissions.
What is supported by Bitcoin
The value of state currencies is supported by the level of the economy. Bitcoin, on the other hand, is a completely decentralized system not controlled by states, and therefore its value is reinforced by other principles.
- The cost of production. Miners are engaged in the issue of bitcoin, which, through mathematical calculations, select signatures for transaction blocks, for which they receive a reward in the form of new coins. In order to issue several coins, a miner needs to have quite expensive computing equipment and spend a certain amount of electricity. Naturally, the more efforts and means the miner puts in order to get coins, the more expensive he wants to sell them.
- Limited emission. A small number of coins provides their high value. The total number of issued Bitcoin coins will never be more than 21 million. It should be understood that many coins have already been withdrawn from circulation, since they are stored on wallets that are not accessible.
- Demand. Bitcoin is a decentralized payment system that is popular and useful to society, with which you can make transactions to any corner of the planet, and demand, as you know, increases the cost. In addition, many investors find it a valuable and attractive investment asset and it is already used as payment in some states.
All these factors determine and reinforce the value of bitcoin. From the moment two pizzas were bought for the first time in 25 BTC, Bitcoin acquired a value that is regulated by the market.
What is the cryptocurrency in general secured by
In fact, bitcoin and other cryptocurrencies are not provided with anything material, but have their own value, because people are willing to pay for them and are ready to accept payment for their services and goods in cryptocurrency.
Bitcoin, unlike its state counterparts, is supported by mathematical algorithms for generating new coins. It doesn’t matter how much Bitcoin will cost, in the algorithm of its functioning the emission of 21 million coins is laid down and no one can change this value.
The functioning protocol is a soulless machine that operates strictly according to the rules laid down. He is not controlled by anyone and is not subordinate to anyone. At the same time, strictly limited emissions are the most effective method of preventing inflation.
The second important point is the need for cryptocurrencies. They cost exactly as much as they are willing to pay for them. It is important to understand that in this case, the process of determining the value will be free from fraud on the part of the government and the further price will be determined strictly by the ratio of demand and supply on the market. And given the limited issue and the fact that a certain percentage of the coins goes out of circulation, cryptocurrencies become similar to valuable metals, which, among other things, also have practical applications.
Behind many cryptocurrencies are successful projects implemented on the basis of blockchain technology, the demand for which is growing every day, and along with the demand, demand is growing and, as a result, cost.
To summarize, we can say that bitcoin and cryptocurrencies in general are an improved version of the usual government money, which differs from them only in that they are not controlled by a narrow circle of interested parties, but are completely under the control of users. But to say that the global economy does not influence bitcoin at all is not true. In times of crisis, when people are wary of money transactions, its value also decreases, but the issue of cryptocurrencies is clearly stated in the protocol of their functioning and is not controlled by anyone, therefore no one can significantly affect the value except coin holders.