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How Is the Price of Bitcoins Set and how does it have value ever wondered?

05 Jul 2022 By : Divya Behl
Southeast Asia’s Lar


Demand and supply are two words that come to mind. Whendemand for bitcoins increases, the price rises, and when demand decreases, theprice falls. As a result, Bitcoin's price reflects how much individuals areready to pay for it at any particular time, depending on their expectationsfor...

The price of bitcoin is determined by two factors:demand and supply. When demand for bitcoins increases, the price rises, andwhen demand decreases, the price falls.

Bitcoin's price reflects how much people are ready topay for it at a given point in time based on their predictions for its futureworth.

It's the same as any other currency's price, whetherfiat money or cryptocurrency.

Since Bitcoin is still young and its marketcapitalization is small compared to the fiat giants like the INR and US dollaror the euro, its price is still very volatile. It’s expected to become lessvolatile when the market matures. However, the fun part about it is no oneknows when that will happen, as it may be in five, ten or twenty years into thefuture.

 

Why bitcoin's price may rise:

  • The bitcoin supply is finite, with a maximum of 21 million coins.
  • There are presently around 17 651 950 bitcoins on the market (84 percent).
  • It might take more than 120 years to reach the 21 million population limit.
  • Technological advancements: enhanced security, anonymity, usability, and user experience, as well as new features, may increase Bitcoin adoption and favourably impact its price.
  • Favorable regulations: If governments favor Bitcoin's use, its price will rise.
  • New business solutions may emerge, increasing demand for Bitcoin.
  • Public perception: if more people regard Bitcoin as a desirable kind of money or asset in which they can place their faith, demand for it and consequently its price will rise.

Why bitcoin's price may drop:

  • Bitcoin's price may collapse as a result of technology issues, ecosystem breakdowns, unfriendly legislation, limits, market manipulation, bad media coverage, or other factors that cause people to lose faith in the currency.
  • Also keep in mind that Bitcoin, like any other money, is exchanged in pairs.

As a result, while exchanging bitcoin for US dollars,the price of bitcoin might differ from, say, Ethereum's ether.

  • Bitcoin's pricing and market capitalization- It's important to note that the price of bitcoin may not accurately reflect its worth. While the market sets the price, the value of bitcoin is highly subjective and is influenced by a variety of variables.

Why Do Bitcoins Have Value

Bitcoins are valuable for the same reason that the fiatcurrency is valuable: it's a practical kind of money that people use topurchase and sell goods.

The US dollar's value is guaranteed by the government,which grants it legal status and allows it to be used...

Every discussion of Bitcoin eventually devolves into adebate about what gives Bitcoin its value.  Skeptics argue that it has little worth,whilst believers perceive it as digital gold with practically limitlesspotential. So, who is correct, and what makes a single Bitcoin so valuable?

There are a few things to think about.

A Brief History of Money

A brief look at the history of money reveals that aslong as people agreed that specific thing had value, then it did. Essentially,it’s faith that makes money work.

At first, people used to barter until it became tooinconvenient. At that point, they started to trade products for things, likeshells and rocks, then gems and rare metals. In recent ages, they were replacedby a government instilled money, that now is the most widely accepted form ofcurrency. As money evolved, it always had the following attributes -fungibility, scarcity, and uncounterfeitability. In addition to that, peoplehave noticed that it’s more convenient to use currencies that are easily portable,stable, and divisible.

Why Is Bitcoin Valuable? (Reasons For Why Bitcoins HaveValue)

 

Money's Brief History

A cursory examination of the history of moneydemonstrates that it had worth as long as people agreed it did. faith, inessence, is what makes money function.

Bartering was employed at initially until it got toocumbersome.

They began trading goods for items like as shells andpebbles, followed by diamonds and rare metals.

They were superseded in recent centuries bygovernment-issued money, which is today the most generally acknowledged form ofcash.

Fungibility, scarcity, and uncounterfeitability havealways been characteristics of money as it has evolved. Furthermore,individuals have discovered that using currencies that are easily portable,stable, and divisible is more convenient.


Bitcoin’sValuable Properties

Bitcoin is in short supply-bitcoinprovides digital scarcity, in contrast to typical fiat currencies, which may beincreased indefinitely. There will only be 21 million BTC available. Unlikefiat currencies, which lose value due to yearly inflation, Bitcoin's inflationis regulated and managed.

Also, if we included Bitcoins that are lost for good(those sent to erroneous, non-existent addresses, or those in wallets whosekeys have been lost, etc. ), the supply is deflationary, implying that therewould be less Bitcoins accessible in the future.

Divisibility.There are 100000000 Satoshis in a single Bitcoin. At the moment, one Satoshiequals 0.00000001 BTC, the smallest unit of Bitcoin. Bitcoin's initial codecontains this degree of division. If necessary, the level of division may beincreased to 16 or more decimal places, implying that Bitcoin has a limitlessdivisibility.

Portability.Bitcoins may be exchanged through any type of communication channel, includingthe internet, satellites, and even radio waves, making it the most transferrablemoney ever. Bitcoin is the world's most portable asset.

Fungibility.Regardless of who owns it or what history it has, every Bitcoin has the sameworth as its counterpart. One ounce of pure gold is always equivalent toanother ounce of pure gold, and vice versa. Whatever happens, a Bitcoin remainsa value symbol that can be exchanged for another Bitcoin.

Durability. Any Bitcoin or Satoshi could be used countless number oftimes without depreciation unlike the fiat.

Recognizability. Bitcoinis being recognised and accepted by an increasing number of retailers andusers.

Many individuals identify Bitcoin from non-currency orother counterfeit money and are prepared to accept it as a form of payment,despite the fact that it is still far from the degree of popularity seen withfiat currencies.

Decentralization.Bitcoin is overseen by no single authority. No one can censor, manipulate, ormodify the network or its transactions, unlike traditional money, therefore noone can take your money.

Accessibility.To possess or receive Bitcoins, you don't need a confirmed bank account. Allyou need is a basic understanding of computers and access to the internet. Theaccessibility of Bitcoin makes it ideal for underbanked places throughout theworld.

Programmability. Unlike traditional money, Bitcoin also has aprogrammability component. It means that Bitcoin will be updated in the futureand will have even more useful features like smart contracts, multi-sigtransactions, and so on.

Stability is a safe haven for money.

Bitcoin price stability is the one element that iscurrently needed. Bitcoin is treated more like a commodity, such as gold,because to its volatility. This is expected to change when Bitcoin becomes morewidely used and there are less incentives to speculate on it. Bitcoin ispredicted to continue volatile until cryptocurrency use becomes widespread.

People want to use Bitcoin to pay for products andservices, save their money, or just speculate, which is the most essentialreason for its present value. The more users and merchants join the Bitcoinnetwork, and the more secure and advanced the system develops, the higherBitcoin's value in other currencies can rise.


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