Tuesday, December 5, 2023
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4 Reasons Why Bitcoin Has Real World Value

4 Reasons Why Bitcoin Has Real World Value

Many people often struggle to understand what makes Bitcoin valuable because its not something tangible or easily converted into goods like other currencies can. Traditional finance and legacy systems have a hard time understanding the value of Bitcoin because they simply can’t keep up with the pace of technology.

Naysayers argue Bitcoin can easily be duplicated, the internet can go down, governments will ban it, or quantum computing will be able to hack it. After nearly 13 years, none of these scenarios have yet to have any serious effect on its outcome.

In the early days of Bitcoin, much of the value was intrinsic or highly objective, but as time goes on and network adoption continues, the real fundamentals of a decentralized currency becomes more clear. For those who are still not convinced, here are four compelling reasons why Bitcoin has real value:

1. Low supply

It doesn’t take an economist to know the more rare an item is, the higher its market value. Rising demand in the face of limited supply makes for exponential rise in price of a product or service.

For reference, Bitcoin has a fixed maximum supply of 21 million coins. Maybe you have heard of the “21 Million Club,” the mythical group of people who own at least 1 Bitcoin, also known as “whole coiners.”

In a world with over 7 Billion, this particular group of Bitcoin owners comprises about 0.3% of the entire population. In contrast, if the entire Bitcoin supply was evenly distributed to the world population today, each person could only own 0.003 worth.

The role played by Bitcoin HODL enthusiasts often goes underestimated. When a sizable portion of Bitcoin remains in cold wallets for the long term, there are fewer Bitcoin to go around. As a result, more money on crypto exchanges chases fewer available Bitcoins, keeping its dollar value up.

Recent research looking into Bitcoin supply suggests that the actual number of usable Bitcoin might be closer to just under 14 Million, when accounting for coins that are presumably lost forever or locked away for extended periods of time.

If one thing is for certain, its that Bitcoin will become more scarce, thanks to its deflationary nature. As governments continue to increase fiat supplies through unsustainable monetary policy, the exchange rate of Bitcoin against fiat currencies will most likely increase along with demand.

2. Network Strength

Bitcoin mining is the process by which new bitcoins are entered into circulation and how new transactions are confirmed by the network. It is an integral part of maintaining the decentralized nature of the system.

The process of mining is performed using sophisticated hardware that solves an extremely complex computational math problem. Computers all over the world compete to find the solution to the problem and is awarded bitcoin in exchange for the energy used in the process known as “proof of work” consensus.

Miners are getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. Part of the value in Bitcoin, therefore, represents all of the computer hardware, electricity, and other resources ever used to mine bitcoin and run the network.

Its estimated that 90% of the Bitcoin supply has been mined so far, or 18.9M total coins. All that remains is about 2M Bitcoin left to mine until the year 2140, over 119 years away, meaning that the supply of new coins entering the market is decreasing at a rapid pace. The last Bitcoin will take 40 years to mine and 95% of the supply will be mined by March 2048.

When Bitcoin was in abundant supply, miners would sell Bitcoin on the market to cover operating expenses like electricity and computational power. As supply continues to dwindle, many of these mining operations are turning to fiat loans to cover their expenses, while holding on to Bitcoin for the long term.

Many volunteers run full Bitcoin nodes in an effort to help maintain the ecosystem and entire blockchain record. As of now, there are roughly 12,130 public nodes running on the Bitcoin network, the most of any decentralized cryptocurrency.

This system of nodes can be thought of as a worldwide payment network with over 12k servers processing and verifying transactions. No part of the Bitcoin network is “owned” or maintained by any one party.

The Bitcoin network has only gone down twice in its early history. The network is estimated to have been functional for 99.985% of its existence since May 2020, rivaling major tech companies like Google and Amazon.

3. Institutional Conviction

In the year 2020, Bitcoin officially gained institutional acceptance when business intelligence firm MicroStrategy became the first publicly traded company in the United States to add digital currency to its balance sheet. CEO Michael Saylor made the announcement in early August after buying over $250 million worth of Bitcoin.

“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders. This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.”

Since that time, MicroStrategy has more than quadrupled down on their position, now holding over 114,000 Bitcoin at time of writing. Other major corporations have since followed suit including Tesla and Block (formerly Square) with more expected to make similar announcements in 2022.

Institutions or governments that hold Bitcoin are often referred to as “Treasuries” and account for roughly 11% of the total supply. Countries like Bulgeria, Ukraine, Finland, and Georgia are all known to own Bitcoin, whether seized by criminals or purchased for investment purposes.

4. Legal Tender

One of the most historic events for Bitcoin happened in 2021 when El Salvador became the first country in the world to make BTC legal tender. The move by President Nayib Bukele enabled anyone in the country to use Bitcoin for good, services, and taxes.

Crypto enthusiasts argue El Salvador is just the beginning and its just a matter of time before other countries see the benefit and create parallel economies of their own. A recent poll by YouGov has shown that that 27% of US residents supported the idea of making Bitcoin a legal tender in the United States.