- Details
Bitcoin has been on a rollercoaster ride since its inception. In 2017, bitcoin experienced massive gains for the first time, where its price started to increase from $1000 and reached $19000 and made ground-breaking records. But a year later, in 2018, bitcoin experienced a downfall, but it started to stabilize its value in 2019. But have you ever thought about what drives bitcoin's value and why do people heavily invest their money in bitcoin? This article will provide you complete knowledge about what cryptocurrencies are and how they are valued. Also, we will learn the meaning of the intrinsic value of any commodity.
There have been many e-wallets and payment applications that have been developed that provide numerous ways to trade bitcoin and other cryptocurrencies. The value of cryptocurrencies is understood by their audience or the value that people agree to pay for it. With the increasing popularity of bitcoin, its price is also increasing, but the only question that people have on their minds is from where bitcoin gets its value and that we will discuss in this article. To know more about bitcoin, you can visit here .
Intrinsic value
The intrinsic value of a commodity means the value that a product has in it. Some products don't require any other source to define and provide value. For instance, sourness is the intrinsic value of salt. Similarly, all commodities earn their value if people agree to pay any amount to acquire them. Today, fiat currencies are accepted worldwide to buy goods and services, and also fiat currencies are traded to acquire goods and services.
Additionally, all the currencies are backed by either commodities or central authorities. Some currencies are backed by precious, valuable metals like silver gold, and they have their intrinsic value. If we talk about fiat currencies, these are the currencies that the government backs.
For a commodity to be valuable, it should be exchangeable for value. Commodities must also hold their value to be traded for any product or currency in the future. Also, if the supply of any commodity is limited, then its demand will increase, which will result in increased value.
Fiat Currency
Fiat currency or fiat money is the currency that is issued and backed by the government. These currencies aren't backed by any commodity like silver or gold as the government issues them. The value of fiat currencies is derived from the relationship between the demand and supply and its stability. For every individual, it is crucial to understand that the demand and supply of any currency are decided by its participants or people that are engaged in it or deal in it. Fiat currencies establish their exchange of value through the government's backing the currency. People trust fiat currencies because the government backs them.
But why people are shifting to digital currencies and electronic modes of payments if they trust fiat currencies. It is important to understand the entire ecosystem to understand this thing.
Digital currencies are electronic mode of payment that is transferred over the internet, and these currencies allow a direct exchange of value between the two parties. A sudden shift has been witnessed from traditional currencies to electronic payment methods in the past few years because it provides more accuracy, ease, and transparency. We have been introduced with multiple payment applications or platforms that allow cashless transactions in seconds. Cryptocurrencies allow direct transfers that are transparent, immutable, quick, and traceable. This is the reason why cryptocurrencies like bitcoin are getting more value and more adoption in the mainstream. Bitcoin is the leading cryptocurrency that allows direct transfers without the approval of third parties.
The value of any commodity can be estimated from two main characteristics that are scarcity and utility. Scarcity means the limited supply of goods and services, and as we know, cryptocurrencies have a limited supply. There are only a finite number of bitcoins that are 21 million, and its suppliers cannot be increased or decreased. Also, it is highly useful as it is equivalent to fiat currencies when it comes to the exchange of currency for goods and services. Bitcoin is used as both a store of value and a medium of exchange.