Where Does Bitcoin Get Its Value From?

4 months ago

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Do you remember 2017 when the price of Bitcoin soared? At that time, many people were highly interested in and invested in Bitcoin. In other words, many people saw real value in Bitcoin. In this post, I will explain how a digital currency Bitcoin was able to obtain its worth.




Paper Money was not a Means of Barter from the Beginning!

Firstly, let's look at the currency that we are familiar with. The value of paper money we use now was not recognized from the beginning. Started with the use of shellfish and barley as a means of barter, it was only after the 14th century that the paper money was used in the history of mankind. In other words, people's consensus gathered to form value.




The Worth of 100 USD Bill

Let's take a look at another example. On payday, the monthly salary is deposited in the account. Depending on the country you reside in, the salary is being given to you in various currencies such as USD, JPY, and KRW; however, fundamentally speaking, there is no difference. There is a belief that we can use salaries to buy what we want to buy, eat what we want to eat, and do what we want to do. It is a belief that money will still be valued in the future. Why is that? (It may seem like I am talking common sense, but seeing something very apparent differently can help you understand Bitcoin more accurately!)


The cost to print a 100 USD bill is 12 cents. The value of a bill is independent of the manufacturing cost. So what is the reason that a 100 USD bill is worth 100 USD? In the past, when you took a banknote to a bank, you changed it to gold, but that's a story in history books. Nevertheless, the belief that 100 USD bills can be exchanged for 100 UDS is based on a belief in the government that issued the currency. But this belief is not always kept. Because there is always inflation that eats up the value of money.





The picture above shows a hyper-inflationary situation in which the value of German currency fell dramatically after World War II. The general public, who have earned savings in earnest, had no choice but to watch the savings of their lifetime savings perish due to external factors beyond their control. Imagine a situation when all prices soar up 100 times when you have been saving 100,000 dollars for ten years to buy a small house. Of course hyperinflation is an extreme situation. Nevertheless, most countries maintain about 2% of their placements a year because of economic revival. To put it badly, the government may sacrifice the cash value of the entire nation for the cause of economic revival.


Now let's talk about the source of the value of Bitcoin. In a nutshell, Bitcoin's worth comes from the implicit agreement between those who acknowledge it. Without that agreement, Bitcoin would only be a list of meaningless numbers on a computer screen. (The legal currency is the same as Bitcoin in that when the tacit agreement between people disappears, it is just a piece of paper.)


Fiat money is swayed by its monetary policy. The price of the sweaty labor slowly dissolves away like inflation-laden salt. Bitcoin has emerged as an alternative to such fiat money. It is a virtual currency that functions by a defined protocol without a centralized organization governing monetary policy. Bitcoin, which is just over 10 years old, has been slowly but surely increasing its worth and the people who recognize its worth.


Will Bitcoin completely replace fiat currency in the future? Bitcoin may be chosen as an alternative currency by people moaning with unfair monetary policy. Nothing can be guaranteed yet, and anything can happen. Nevertheless, until the fundamental problem of fiat money is solved, we need to see positively how the big experiment of Bitcoin will change the world.



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Published 4 months ago