What makes Bitcoin Valuable
08.07.2021 • Просмотров:

What makes Bitcoin Valuable

By Decimal

Back in 2009, the original Bitcoin blockchain was launched. It was born due to the shortcomings of traditional financial markets and fiat currencies. Together with its launch, a new technology was born, which will be adopted by thousands of enterprises and millions of people around the world.

Blockchain, a type of distributed ledger technology (DLT), is a decentralized electronic database that cannot be controlled, censored or manipulated by any centralized or controlling party.

The blockchain or database is managed by a network of computers around the world that mathematically verify transactions by solving a complex mathematical problem. After the transaction is confirmed, it is placed in the” block ” along with all other confirmed transactions.

Once this block is filled, it is added to the block chain, where all transactions that have ever occurred can be publicly available on the internet through a website, for example, etherscan.io.

This is a blockchain that stores information about the number of unspent output transactions (UTXO), or what most people call a cryptocurrency (Bitcoin), which can be viewed as a balance in an electronic wallet belonging to an individual.

When a transaction occurs in the blockchain, it is immutable, that is, you cannot log in to your account and manually change the balance (as in banks). Transactions are permanent, as if carved out of stone.

Each transaction is mathematically hashed or encrypted with the information data of the previous transaction for verification.

This means that in order to manage a transaction in the block chain, the hacker must also change transactions that occurred earlier in the chain so that consensus can be reached throughout the network.

The information stored in the blockchain is also hashed using public and private keys. Your public key and your private key cannot be linked, which means that you have full control over who can view your data and when.

Is it possible to hack the blockchain?

Theoretically, yes, but in practice it is extremely difficult to implement. If a person is able to generate enough hash power to capture more than half of the network of computers (nodes), this will be a so-called 51% attack.

This is what developers take into account when creating new protocols and blockchains. Ethereum Classic recently fell victim to a 51% attack, and their proof of network operation was compromised when someone was able to take over most of the network’s computing power. As a result, this allowed us to spend the Ethereum Classic token for millions of dollars twice.

Most new projects are now switching to the Proof of Stake (PoS) consensus, which provides a much higher level of security in the network, which makes it astronomically difficult to achieve a 51% attack.

Top 10 coins by market capitalization listed on Coinmarketrate. com using proof of work (PoW), have a much lower probability of an attack of 51% than coins with a lower capitalization. This is due to the size of the networks (thousands and thousands of nodes), which means that even with the largest supercomputer in the world, it will take longer to crack the network.

One of the many value propositions of Bitcoin is that the network is arguably the largest, and most powerful, computer network in the world.

Why do we need money?

Before the advent of money, people exchanged goods for other people’s goods, offering in return those goods that they could provide themselves. This type of financial relationship was called barter.

However, this became difficult as it became increasingly difficult for people to find options when trying to achieve a fair exchange.

So money was gradually introduced as a way of evaluating goods and a fair means of exchange between the parties. Shells, valued for their beauty and rarity among the inhabitants of the mainland, and furs were often used as money. Salt was once a very valuable commodity that financed wars and the construction of cities.

Salt is durable, easy to carry, it can be weighed as a unit of account and used as a preservative and seasoning for food. For hundreds of years, salt has been highly valued by both farmers and kings. This was until technological improvements increased the production of salt so much that the supply far outweighed the demand, reducing its cost to a penny in today’s era.

There is one important factor that determines the difference in definitions between “money” and “currency”. It is incredibly important to understand the difference, since most people confuse them or believe that they are the same thing.

There is a list of properties that historically gave value to currencies, while gold was the only currency that could withstand centuries. Gold has unique elemental properties that make this metal valuable, while silver, platinum and palladium have similar properties, although they have a slightly lower value.

Valuable properties

Currency and money have some internal properties.

  • Currency properties: strong, divisible, portable, interchangeable, a means of exchange.
  • Properties of money: durable, divisible, portable, interchangeable, a means of exchange, accumulation of wealth over a long period of time.

Bitcoin is often called digital gold because of the common properties of these assets. Why? Let’s figure it out:

  • Gold – this precious metal has been used in transactions for thousands of years. The gold was passed from person to person, melted down again, before returning to circulation, so that the process could be repeated again. Despite the constant movement in society, gold retains its strong, substantial and stable properties as a form of money and currency.
  • Bitcoin is a digital currency with a huge network of computers around the world that verify transactions. As if the network on Earth wasn’t strong enough, there are now several dozen satellites orbiting the Earth that serve as blockchain nodes, so if the global network is ever compromised, there will be copies of the blockchain in orbit.

Interchangeability

  • Gold – wherever you go in the world, any gold that you find will always have the same valuable properties.
  • Bitcoin – in any geographical location, when you access the BTC using a digital wallet, it will always be the same block chain protocol. One Bitcoin in any person’s pocket is worth the same as one Cue Ball in your pocket.

Deficit

One of the main properties that make Bitcoin valuable is its scarcity. Unlike gold, there is a limited number of coins that can ever be produced. The protocol is written for mining 21 million coins and no more.

At the moment, 18 million have been mined – while Satoshi Nakomoto is rumored to hold about 980,000 BTC, and more than 5 million Bitcoins are “lost” due to the fact that people have lost their private keys and, consequently, their bitcoin funds.

There is value in scarcity, and Satoshi Nakomoto realized from the financial crash of 2008 that quantitative easing (printing money) only devalues the dollar.

Unlike central banks that print an unlimited number of banknotes, the supply of Bitcoins is halved every 210,000 blocks (approximately every 4 years), becoming an increasingly scarce asset. Thus, while the fiat currency is losing its purchasing power due to monetary and fiscal incentives, the purchasing power of the BTC is increasing and increasing from year to year.

Medium of exchange

Another aspect that makes Bitcoin valuable (which is often overlooked) is its use as a”medium of exchange”. This means that the asset is used as a form of payment for goods and services in various ways.

Ease of use as a medium of exchange is perhaps the most important factor for a currency – the US dollar is an example. The Office of the Comptroller of the Currency (OCC) confirmed in its reports to banks that “fiat money refers to instruments that have no intrinsic value, but which individuals and institutions are ready to use for purchase and investment purposes, since they are issued by the government.”

Bitcoin was used as a currency in the early days of its existence, but as its value has grown, it has become a coveted digital asset, not just a means of saving.

In order for it and cryptocurrencies to expand and become used all over the world, they must be used, allowing the crypto economy to continue to move and grow.

Bitcoin is now widely used both on the Internet and in stores. Thanks to the payment giants Mastercard and Visa, which are now starting to work with cryptocurrency (after the public statement that Bitcoin is a scam), people can spend various cryptocurrencies online and physically at points of sale using crypto-debit cards worth more than 200 million. And El Salvador has generally accepted Bitcoin as a means of payment at the state level.

Wealth Store

Historically, people flocked to gold and other commodities to preserve their wealth. But the digital generation seems to be more inclined to invest in cryptocurrencies, as they see more value in the technology than in a shiny piece of metal or paper with a promise on it.

Gold can be difficult to store safely. Many people allow others to safely store their gold in the vault. Some order online storage, and have an authentication certificate that can be exchanged for gold coins. Most people who buy gold do this without even seeing the purchased asset.

Bitcoin can be safely stored offline in hardware wallets that are secure, and slightly larger than the size of an average USB drive. This gives you full ownership of your digital assets.

One of the most unpleasant aspects of storing Bitcoins is remembering the initial phrase for accessing a wallet or account. Thousands of people lost their funds due to the fact that they could not remember key phrases and passwords.

Write down your original phrases and passwords in a book and keep this book in a safe or somewhere else safe. If you lose this, you may lose your funds forever.

Last thoughts

Bitcoin has opened a completely new free market that allows you to determine the value of assets solely on the basis of supply, demand and market sentiment.

Before the manipulation by the government and excessively inflated valuations of companies, the stock market was designed for just such a job. Due to human mistakes in the form of greed and stupidity, the value of stock markets no longer reflects the real economic situation that is happening to ordinary people.

Bitcoin has solved this problem by replacing monetary policy with a deflationary protocol that is incredibly difficult to manipulate. The network of nodes / miners powering the Bitcoin blockchain is financially stimulated to follow the rules, which means that any attempt to manipulate transactions in the blockchain by the miner will lead to the loss of the block reward.

Bitcoin is often referred to as “digital gold” – and rightly so, since it has many of the same properties as gold and serves as an internationally recognized repository of wealth, much like the precious metal. However, Bitcoin is even more portable, more divisible, rarer and more interchangeable than gold.

All these fundamentals and properties make this crypto asset valuable and, therefore, can become a recipe for a new world reserve currency.