Examining Bitcoin’s Intrinsic Value As A Store Of Value And As A Medium Of Exchange
Bitcoin’s Intrinsic Value As A Store Of Value And As A Medium of Exchange
All the criticism Bitcoin and cryptocurrency currently faces is almost completely ignorable, compared to how much tongue-lashing it got in its early days. In the beginning, many people thought Bitcoin would not survive because it had no regulation but also, many economists and financial analysts also didn’t have faith in the asset because they believed that there was little or no intrinsic value.
If you really do think about, it was not a surprising point to be made because at the time, not a lot of people had significant understanding of the asset and its budding market. So, many people dismissed it and didn’t pay it any mind.
Bitcoin As A Trusted Way To Transfer Funds
Bitcoin, the first major decentralized cryptocurrency and the current largest with an unmatchable market cap, is now about a decade old. In that period, the asset has matured and performed quite impressively such that a lot of the criticism no longer holds much water and has died a natural death. Now, it’s almost impossible for anything anywhere to not be criticized – and in some cases, these criticisms are valid – but anyone who understands cryptocurrency as a medium of exchange and a store of value that is resistant to most of the factors that impact most traditional markets, will come to understand that there is much to be said about the intrinsic value of Bitcoin.
On the same topic, people have noted that as far as currencies are concerned, fiat currencies will almost always have an unmatched intrinsic value because regardless of how supportive or dismissive anyone is about fiat, it is still compulsory for certain things such as payment of taxes. However there might be some things to consider that will favour Bitcoin also.
Even though crypto is the preferred way for cybercriminal transactions on the darkweb, there are quite a number of reasons why law abiding citizens would need to use crypto in a bid to circumvent a dependence on fiat currencies. One good example is the recent Bitcoin surge which, among other things, has been tied to the trade wars currently being “fought” by the United States and China.
The actions both governments are taking against each other may have forced Chinese people to look away from their Yuan to other carriers of value. In this case, even the U.S. Dollar might not be much of an option. Apart from the fact that it may not readily be acceptable for them, in theory, the U.S. Dollar is still prone to take a hit as a result of the ongoing battle. The most trusted medium of exchange would then have to be Bitcoin, which will make it easy for businessmen to continue legitimate business even though they have to forego fiat. This, on some level, has to count in favor of Bitcoin’s intrinsic value.
Bitcoin As A Store Of Value
Many of the altcoins available in the crypto market can also perform very well as mediums of exchange. Some altcoins have networks that can settle transactions even a lot faster than Bitcoin can and probably considerably cheaper too. Sometimes, this point is used against Bitcoin with many people making the point that there might be better options for Bitcoin as a medium of exchange.
Even though there now is the Lightning Network which will considerably improve Bitcoin’s scalability issues, the Bitcoin network is a lot more focused on protecting privacy, security and stability. This is to ensure that if it doesn’t end up being the most preferred medium of exchange (unlikely as it still is the most popular), it remains an unmatched store of value. For most Bitcoin users, it would seem that security and stability are more of a priority than many of the novelty payment characteristics and methods offered by other altcoins.
It also helps to note that if an asset is a good store of value then it would ultimately be better accepted as a medium of exchange. Mediums of exchange which boast of better speed but do not hold serious value might eventually lose their hold on the market. Also, even with the general volatility of the cryptocurrency sector, it’s important to note that Bitcoin isn’t as unstable as the other altcoins. This gives it a considerable edge.
Estimating The Value Of Any Asset
As much as the “intrinsic value” phrase is thrown around quite a lot, it helps to critically examine what exactly makes something valuable. Generally, value is determined by many external factors and might not always be something the asset can declare in and of itself.
Diamonds, for example, surged in value when a campaign was run many years ago, pushing to make it more expensive. This campaign together with a suggested artificial scarcity is said to be the reason why diamonds are as expensive as they currently are. However, if this didn’t happen, they might be a lot cheaper and more ubiquitous.
The above explanation just goes to prove that value can be tricky and sometimes fleeting. What makes Bitcoin as valuable as it is, is the fact that it has no control at its core and all the politics in the world cannot shake it the way it can possibly shake fiat. Bitcoin can even benefit from economic instability and unrest as it is projected to do if the U.S. and Chine dispute continues.
As Satoshi once explained, Bitcoin could increase or decrease in value “by people foreseeing its potential usefulness for exchange.”