How Bitcoin Price and Value is Determined

When Satoshi Nakamoto introduced Bitcoin in 2009, it was worth basically nothing. There were no exchanges or market, users were mainly cryptography fans who were sending bitcoins for hobby purposes representing low or no value.

bitcoin valuation

In March 2010, user “SmokeTooMuch” auctioned 10,000 BTC for $50 (cumulatively), but no buyer was found.

Wikipedia

Few years and many developments later, Bitcoin prices hit $19,783.06 for the first time (December 17, 2017) making a lot of early adopters millionaires (and billionaires) within a short period of time.

What drives Bitcoin’s value?

We are now living in a digital age where computers and algorithms are slowly replacing traditional ways of doing things. Among the many things being disrupted, payments is one of them.

Digital currencies like Bitcoin are now being accepted as alternative means of payment as against the traditional methods that exist today.

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These currencies are rapidly being adopted because they solve many problems that exist with FIAT money today some of which are:

  1. Freedom of use: Currencies should have freedom of control from central authorities such that it cannot be controlled and circulated at will thereby reducing its value.
  2. Borderless: Currencies should be borderless and not restricted by demography so that anyone can simply exchange it at any region with any other person at any other region with ease.
  3. Non-political: Currencies should be free from politics. This implies that it should not be in favor of any particular structure or governmental body.

Basically, these are the features of Bitcoin that makes it an enticing option compared to any fiat-based financial institution. Bitcoin is the world’s first truly decentralized electronic currency.

As people learn about Bitcoin and the many use cases that it proposes, the value of this asset goes up.

Bitcoin’s worth majorly stems from it becoming the first computerized currency that no distinct person, Government body or organization can manipulate. Anybody can purchase and trade bitcoin. No one can tell another individual how they can best utilize or not utilize bitcoin.

It is a currency that is free from autocracy, abuse, and devaluation. It is a monetary sanctuary for individuals existing under hard circumstances.

Bitcoin as a store of value

store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved.

While most cryptocurrency enthusiasts disagree with this use case, it can’t be denied that Bitcoin is still being used as a store of value by Bitcoin Maximalists.

What drives Bitcoin’s price?

Just like Gold, Bitcoin is a scarce asset. The highest number of bitcoins that will ever be in existence is estimated at 21 million and by virtue of simple economics, the lower the supply, the higher the price. The more people are aware about this, the more the prices continue to soar.

Over the past years, we have seen a positive growth in Bitcoin Adoption due to it’s utility value. More products and solutions are being incorporated and built on the Bitcoin and Blockhain protocol – hence the speculations and effect on it’s price.

Conclusion

Bitcoin continues to soar amidst all the crackdowns, hard forks, Government interventions and many more attacks. This is a clear sign that this new fast and efficient method of exchange is truly disruptive and most importantly, it works!

It is possible that the value of Bitcoin could grow exponentially over the next years. However, it all depends on rate of adoption and various use cases.

A vital question is “Will the world eventually endorse Bitcoin?”

Disclaimer: This post has been contributed just for educational purposes and should not be regarded as financial advice of any sort.

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