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For people who have been in the crypto market longer, some concepts can be very clear and easy to understand, such as why Bitcoin has value and what main characteristics contribute to it.
However, this subject is still new to many and every week more people discover Bitcoin.
Bitcoin derives its value from a variety of different attributes. It has value because users believe it, but there is more to consider. It is absolutely sparse, does not need leaders, is easy to transport, store, and divisible. Bitcoin’s unique features make it valuable in the eyes of its owner, but not everyone can understand this yet.
### SCARCITY
Arguably, the defining feature of Bitcoin that sets it apart from other forms of currency is its scarcity, both mathematically and algorithmically proven. Unlike traditional fiat currencies with an unlimited supply that is adjusted to the whim of central banks, Bitcoin is intentionally limited in supply to 21 million units.
Bitcoin is the only asset in the universe that has proven scarcity. While traditional commodities like gold, silver and oil are limited, we find new reserves every year, making it difficult to accurately calculate their scarcity.
Think of the money we all use on a daily basis. There is no more gold or assets backing these notes. The money we borrow often just exists as numbers on a screen, thanks to fractional reserve banking. Governments and central banks like the Federal Reserve can create new money and increase its supply through economic mechanisms.
No more than 21 million units will be available as miners must mine the last Bitcoin around 2140.
### DECENTRALIZATION
This is one of the strongest benefits of Bitcoin and we will understand why.
After creating Bitcoin, Satoshi Nakamoto walked away from the project, putting Bitcoin in the hands of its users. This attitude was intentional as it eliminates the potential for a single point of failure, making it more resilient than traditional currencies. Such a disruptive invention with its easily identifiable creator would become an easy target for retaliation from agencies and companies interested in ending its effects.
Bitcoin’s decentralized nature also reinforces its other key qualities, such as its finite supply and resistance to drastic change, as no single node on the network can make decisions on behalf of everyone.
Anyone can help improve the Bitcoin network due to its open source nature.
The work of miners is also another example of decentralization. It involves verifying and validating transactions, but also ensuring that new bitcoins are added to the system at a predictable and constant rate.
Bitcoin decentralization offers the most robust and secure form of system ever created. Transaction validation and protocol updates need to have group consensus, protecting Bitcoin from mismanagement and abuse.
### AUDITABILITY
Bitcoin's blockchain ledger provides a permanent record of all transactions, and open-source accessibility allows anyone to view and verify transactions that have already occurred or are in progress. The ability for anyone to view and audit transactions is essential to furthering the decentralized nature of Bitcoin. Without this transparency, Bitcoin scarcity could easily be manipulated behind the scenes.
### CLEAR MONETARY POLICY
Although the US dollar is the most widely used and traded fiat currency in the world, it has many weaknesses that Bitcoin’s creator – Satoshi Nakamoto – sought to address. Unlike Bitcoin, the US dollar is centralized and has an infinite supply.
The Federal Reserve, the US central bank, is responsible for the creation, distribution and circulation of currency. Therein lies the problem. This freedom to issue money is what causes inflation and the loss of people's purchasing power.
Economic instabilities, as an example of this, can be seen throughout the history of humanity and more recently in the present day, with the increasing inflation that the world has observed.
Bitcoin is fundamentally incapable of creating this kind of economic instability because of its limited and periodically reduced supply.
The security of Bitcoin’s value over time is one of the main reasons why more and more investors are choosing to keep it as their long-term preferred method of storing wealth, in many cases even preferring it to gold.
### PORTABILITY
Bitcoin is a highly portable digital currency, that is, extremely easy to transport and use. It can be stored on personal devices and can be sent or received digitally almost instantly without exorbitant fees.
One of the main benefits of Bitcoin is its ability to quickly transfer large amounts of value across the world without the need for intermediaries. While it can be relatively expensive to send a small amount of BTC due to fees, it is also possible to send millions of dollars cheaply.
Millions of Bitcoin transfers have already been carried out, where the user paid only $50 in fee.
While Bitcoin is not the only network that makes this possible, it is still the biggest, most secure, and most popular. The Lightning Network also enables small transactions, like a second-tier network. Being able to transact without borders is certainly very valuable, isn't it?
### DIVISIBILITY
Bitcoin’s divisibility is a big advantage of it over gold.
Each Bitcoin can be divided up to 8 decimal places after the comma. On the other hand, splitting 1g of gold to 10 people is technically very difficult to do.
In fact, Bitcoin is more divisible than most currencies: a single Bitcoin can be divided into satoshis, which are equal to one hundred millionth of Bitcoin (1 satoshi = 0.00000001 BTC).
As a result, each Bitcoin can be divided into 100,000,000 satoshis.
In the future, if necessary, Bitcoin's divisibility can be increased to 100 billion pieces or even more, as Bitcoin's protocol and software can be modified to handle even smaller units.
### Security
This is one of the main value characteristics of Bitcoin. The more nodes that connect to Bitcoin's distributed network, the more value it will get, as it will allow as many people as possible to participate, the Bitcoin network improves its overall security.
A centralized data system is more susceptible to cyber attacks and obligatory than a distributed one. When distributing the transaction log among different users, there is no need to rely on a single source of truth.
The Bitcoin network is maintained by thousands of users all over the world, making it much more efficient and secure.
Bitcoin users do not need to trust each other. They just need to trust Bitcoin technology, which is proving increasingly reliable and secure, the source code is open for anyone to see. Proof-of-work is a transparent mechanism that anyone can verify. It's easy to see the value in generating consensus that is almost always error-free.
Malicious attacks on the Bitcoin network require possessing more than 51% of current mining power, making coordination on this scale nearly impossible. The probability of a successful Bitcoin attack is extremely low, and even if it happens, it won't last long.
### BITCOIN AS A RESERVE OF VALUE
Most of the characteristics already described also make Bitcoin a good asset to be used as a store of value. Precious metals, US dollars and government bonds are more traditional options, but Bitcoin is gaining a reputation as a modern alternative to digital gold, despite its volatility, which has been decreasing over the years. For something to be a good store of value, it needs: durability, portability, divisibility, scarcity, acceptability, fungibility and recognizability.
### MARGINAL PRODUCTION COST
Another theory is that Bitcoin has intrinsic value based on the marginal cost of its production. Bitcoin mining involves a considerable amount of electricity, and this imposes a real cost on miners. According to economic theory, in a competitive market between producers who manufacture the same product, the selling price of that product will tend to its marginal cost of production. Empirical evidence shows that the price of a Bitcoin tends to follow its cost of production.
There is no single, clear answer as to why Bitcoin has value.
Cryptocurrency has the core aspects of many valuable assets such as precious metals and fiat (traditional currency) but does not fit into an easily identifiable tag. It acts like money without government support and has scarcity like a commodity, even though it is digital.
A general lack of knowledge and misunderstanding has led some to question whether Bitcoin has any value. But ultimately, Bitcoin runs on a very secure network and the cryptocurrency has a considerable amount of value placed on it by its community, investors, and merchants.
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