Bitcoin is an excellent means of sending and receiving money with the help of internet connectivity. The entire bitcoin network is controlled by a decentralized network with a set of protocols and processes. Decentralized network means it is not governed or controlled by a central authority or financial institutions. Unlike fiat currencies whose supply and the price is controlled by Federal Reserve, bitcoin’s supply is limited, and the market is volatile.
Bitcoin market keeps on fluctuating according to demand and supply of it. There have been many controversies on the price of bitcoin, and there are many factors to fix the price of a currency. Bitcoin is considered the first modern cryptocurrency and a great alternative to fiat currency. But do you know the factors or things that give Value to any currency? Have you ever traded cryptocurrency on a trading platform like Bitcoin Supreme?
Here, in this article, we will know reasons why currencies have Value and what are the factors behind change in its Value.
Why Currencies have Value?
Currency is only usable if it can maintain its Value with time without depreciating. In ancient times, people used precious metals or commodities as a store of Value because they have a stable value. But with time, when it becomes difficult to carry the commodities or metals, societies minted currencies. Minted currencies then came into a trend because they became a method of payment that but it involved menace of depreciation.
With time, the minted currencies were converted into paper money which had Value. People started to use electronic currency and methods of payment. The currencies were the main representative that can be exchanged for a commodity of a specific amount. Later on, the global currencies were referred as fiat currencies which were issued by the government according to demand and supply. People had full faith in fiat currencies as the government generated these.
A successful currency is the one that meets all the qualifications that are related to transportability, scarcity, utility, counterfeit ability, divisibility and durability. We will know all these qualifications by comparing the bitcoin with fiat currencies.
Bitcoin vs Fiat Currencies
Scarcity refers to maintaining the Value of currency through its supply. Bitcoin was invented by a mysterious entity known as Satoshi Nakamoto in 2009. Bitcoins are mined, and there is a limited supply of bitcoin, i.e., 21 million. In today’s time, 18 million coins are in circulation, and left is required to be discovered. It is noted that after 2140 bitcoins will not be available. This factor has lead to a higher value of bitcoin.
It is imperative to have a utility for currency to be efficient. Bitcoin has become popular because of its underlying technology, i.e., blockchain technology. It makes the entire system transparent because the transactions are recorded in a distributed public ledger. There are no third parties that have control over the bitcoin network. The blockchain technology has made the system quite flexible, and it can be used anywhere in the globe.
Divisibility is the ability to get divisible into small units. When compared to fiat currencies, 21 million bitcoins is quite a smaller amount. It is possible to divide bitcoins up to 8 decimal units. People named the smallest unit of bitcoin as Satoshi, which is equal to 0.00000001 bitcoins. This allows bitcoin to be divided and distributed in the overall economy. Because of the extreme divisibility of bitcoin, the scarcity of it has been possible.
People over the globe can buy the small fractions of bitcoin and can circulate it and used in daily transactions. This will help businesses to grow and widely accept bitcoins as a payment method.
A successful currency is the one that can get transferred in the economy to be useful. Bitcoin is an electronic currency, and it can be easily transferrable peer-to-peer. People widely use bitcoin as a medium of exchange because there are no transaction fees charged. Unlike banks that take few days to transfer the money, the bitcoin transactions are made possible in few minutes. A currency must be able to transfer to maintain its Value.