What is a currency? When the currency really has value?
The five critical currency features and the difference from the famous cryptocurrency.
The importance of authenticity and how technology affects it.
Before answering the question “what makes Bitcoin valuable?”, we must first clarify what makes money worthwhile.
What are the characteristics (in terms of quality) that make some currencies more valuable than others?
Money has some specific characteristics:
- It must be durable,
- their authenticity easily verified,
- they are rare,
- they are widely used,
- they are easily transportable.
Let’s take a closer look at Bitcoin
1.) Durability
A currency needs to be durable, having the ability to maintain its value. United States of America do not change their currency, they use United States Dollar (USD). Its price, although it daily fluctuates compared to other currencies, it has some proven stability. Currencies tend to have the same characteristics such as gold and silver. Gold has its own value during the ages. Gold had value before 300 or even 1000 years, something you can’t say about many things.
Lets move to Bitcoin now
Bitcoin has been born on 2008, so it is lets say 12 years old. These 12 years its price had shown remarkable ups and downs. If someone had invested 100$ in Bitcoin on 2011, today he would have been a billionaire. However, 12 years are not enough to make a conclusion about its durability.
Its disadvantage is that it has extremely high price varations (even in short-term), so it is relatively early to draw safe conclusions about its durability.
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2.) Verification of authenticity
Banknotes and gold are quite easy to verify as to their authenticity. However, despite the special features on the surface of the paper to prevent counterfeiting, there are problems. There is always the risk of fraudulent counterfeiting. There are also imitations in gold. Special procedures are followed by qualified people to verify its authenticity.
Gold is mineral and we can find it in different qualities, purity, etc.
In Bitcoin we do not have such issues. Each is exactly the same as the other.
Bitcoin cannot be copied. It is impossible to have one piece and sell it twice. There are no fake bitcoins in the blockchain.
3.)Rarity
The case of Venezuela shows us why a currency needs to be rare. The central bank (tolally controlled from the governement) has printed a huge amount of banknotes. As a result, Venezuelan bolívar (the oficial currency of Venezuela) lost its rarity, and thus its value.
Do you think that only happens in weak economies?
Let’s look at the most powerful currency in the world, the euro.
European Central Bank, in its effort to reduce unemployment and increase investments in the eurozone, it is increasing the amount of money available in the market, causing causing an oversupply of money. Euro is losing day by day its rarity, and thus its value.
But what happens in Bitcoin? Can we have an overproduction of Bitcoins?
Definantely not.
Only 21 million Bitcoin can be created in a perfectly planned time and pace.
Bitcoin even has the advantage of gold, which we perceive as rare, maybe more than gold.
We do not actually know the exact amount of gold on Earth.
In Bitcoin its rarity is sure, no doubt. Why; Because it relies on mathematic rules, that have been pre agreed in the bitcoin community.
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4.) Marketability
A currency should be able to be sold at any time, without losing its value in every transaction. This is only achieved when it is widely accepted as an asset and there is sufficient liquidity. The more people use it, the more valuable it becomes. If it goes beyond your country’s borders, even better.
It should also be easily transportable and sufficiently divisible so that it can be used for the purchase of both large and small values. This is why the house or the cow is not used as money, although they are valuable. It’s not easy to break it up into small pieces for purchases of low value items.
Bitcoin can be divided into 100 million (satochi), like the euro or the dollar into 100 cents.
5.) Ease of movement
A big difference between gold and Bitcoin is that Bitcoin does not require storage or storage costs. And of course I can have it immediately in case of need. The gold is too heavy to get on the plane carrying it in the suitcase or in the pockets.
So if I want to escape a catastrophe or if I am in a dictatorial country and chasing after a substitute (not necessarily true), I have to leave it behind. As of course my real estate.
Unlike natural gold, which you need to keep in a safe place, Bitcoin codes can be stored on a mobile phone or on paper or even in our memory. You can cross the border even naked, without knowing if you own it.
In addition, because Bitcoin is sent as an e-mail, they cannot stop you from sending money. Nor do they limit you within borders, as with capital controls. Nor to confiscate them, as in Cyprus & Greece or to anyone who owes.
All you need is any smartphone and internet connection.