If you have been paying attention to the media lately, you may have seen the mentions of Bitcoin’s price breaching very impressive milestones. You might think to yourself, “Why is Bitcoin so expensive? It’s just an invisible, digital coin!” You might wonder how it gets its value. Discover the following few reasons why Bitcoin is considered a treasured investment by tens of thousands of users worldwide.
Bitcoin does not have a central controller or entity. If you’ve heard of the “cloud” you’ll conjure images of many computers, servers, and networks connected together to support one purpose. Bitcoin is very similar to this cloud concept. The entire Bitcoin network is tens and hundreds of thousands of computers worldwide connected and mining at the same time. They’re all solving computational equations to find the single one string of numbers that reward the finder(s) with the next block reward.
Throughout this process, all computers will communicate with each other. They will all share findings and agree on whether or not the incoming transaction is valid. Therefore, not one single entity or corporation has a direct influence on Bitcoin. All of the computers connected to the network have an equal say.
This also means that neither one single person nor entity has the ultimate say as to whether Bitcoin should receive a change/modification or not. This ultimately prevents the coin from being influenced by an authority that has malicious intent. Likewise, because Bitcoin has a limited supply of 20 Million, there is no entity that can inject more coins into the Market, as is seen with most fiat (paper & physical) currencies.
When you make a transaction, the only thing known about you is the letters and numbers of your public key. Unless you have broadcasted this public key in correlation to your identity, people browsing the blockchain will have no idea who the sender is, nor will they know who the recipient of those coins is.
This appeals to the broad population because identity security is becoming an increasingly valued asset. With the widespread of software, applications, and technology, identity security is becoming more tarnished. Major companies such as Facebook, Google, and Apple (to name a few) are aware of who you are (your identity) and how you interact online. If a government organization tried hard enough, they could quite easily look up your history of interactions online and determine your intentions of using software, applications, and websites.
Bitcoin does away with this monitoring and promotes an ecosystem of users anonymously transferring currency from one user to another without concern of who is watching them.
3. Supply And Demand
There is a limited supply of Bitcoin. In the year 2020, there will only be 21 million coins in circulation. It’s impossible to create more coins based on the nature of Bitcoin’s source code. Because of this, there exists a sort of reverse inflation. As Bitcoin grows in age, there will be fewer coins entering the marketplace and more people wanting them. This is the cause of certain price increases, especially in times of ‘halvenings’. A halvening is when the reward for discovering a new block of Bitcoin is cut in half. As mentioned before, this reward will cease to exist in 2020, when miners will instead receive compensation in the form of transfer fees from verifying transactions.
Also take into consideration how many coins are lost or destroyed. The media tells many tragic tales of early adopters losing the private keys to their coins, or of investors losing access to a hard drive that contained a sum of Bitcoin. Once these coins are lost, they are never to be found again. When there is fewer supply on the market, there are fewer coins on the market to fulfill the demands of investors and cryptocurrency enthusiasts.
While the supreme limit of Bitcoin is 21,000,000, the actual limit may be significantly lower than that through lost/destroyed coins. Over time, we’ll read about more and more stories of people losing access to their coins. While there is no definite figure of how many coins have been lost in the digital void, it’s certain that several million have perished, never to be returned to the marketplace.
These three aspects together continue to drive both the appeal and price of Bitcoin higher and higher. Over time we will continue to observe this diverse supply and demand play out in the favor of Bitcoin’s valuation. There just may be a point in time where owning only one Bitcoin is considered a very rare and valuable feat! Only time will tell.