Why Bitcoins Have Value

what is bitcoin and why is it valuable

You have to distinguish between market value and intrinsic value — and cryptocurrencies have no intrinsic value. What is it? Why is it so valuable? Should I buy some? How do I buy some? Yes, this is actually happening! And why not? Imagine a gigantic piece of paper that lists every transaction ever completed.

Then imagine that there are thousands of copies of this paper, and all of them are automatically updated when any two people agree to exchange bitcoins. Every time a transaction takes place, all these copies are checked for consistency to make sure you actually have the bitcoins you claim to have.

If everything checks out, the new transaction is added to all the pieces of paper at once. This is the heart of the genius idea that is blockchain, and what makes it possible to have certainty over a bitcoin balance someone owns, without needing any central party such as a bank to verify it.

If all the pieces of paper agree, then the balance is correct, and trying to doctor or fake all the pieces of paper at once is impossible. The best and worst thing about this technology is that it has been made available for free to anyone who wants to use it. Bitcoin is simply the oldest known use of blockchain technology. This was quickly picked up by all types of criminals as a way to exchange money without having to go through a bank. Fast forward a few years, and everyone and their mother wants to own one because they saw it on TV.

It literally takes less than 24 hours to do so for someone with mediocre tech skills. The only difficult part is convincing suckers, er sorry, I mean lovely people, that the coin you created is worth something. You may have heard there is a limit to the number of bitcoins that can be created and, therefore, the supply is limited, which, in turn, is used as a justification for its price. For a number of technical reasons, this is true.

However, there is absolutely no limit to the number of cryptocurrencies that can be created. Read: Kodak boards the blockchain bandwagon. Have you heard of bitcoin cash? How about bitcoin gold? Bitcoin silver? There is an even a Dogecoin, as in Doge-coin. I am not kidding; Google it. Yup, they all exist, 1, different coins as of last count, and thousands more will be created as long as people are willing to throw real money at them.

How is it possible that something so easily created and with nothing to it other than a name and a story can be worth so much money? It all comes down to the difference between intrinsic and market value. Market value is simply determined by the difference between supply and demand.

If demand exceeds supply at any point, the price will go up, and vice versa. The demand for PS4s far exceeded supply during that Christmas period. The answer is, of course, no. So why is it so much cheaper? Gasoline has intrinsic value because you can burn it to move your car. In turn, your car has intrinsic value because it can move you from place to place. Your stock holdings have intrinsic value because they are expected to eventually pay you dividends. Your home has intrinsic value because you can sleep in it, and it can keep you warm and dry.

Your dollars have intrinsic value because the government guarantees you can pay taxes and buy government services with them. The intrinsic value of anything is simply the tangible value it provides, and may or may not equal the market value at any one time. A good way to think about intrinsic value is as a floor to the value of any object. If the market value falls below that floor, enough people will simply choose to use the object rather than sell it, since they get more value out of keeping it.

This, in turns, reduces supply and increases the price back up to intrinsic value. If there is a sudden interest in a product, the market value often goes far above the intrinsic value, and then settles back down once the hype dies down. Thus, financial bubbles of all kinds are born. Should people stop wanting to buy your monopoly money, the only intrinsic value it would have is a certain bathroom function, which is still more than you can do with an e-coin.

Investors usually disagree on the intrinsic value of something, and bring up arguments about the future potential of a technology to justify valuation.

However, remember, bitcoin is not a technology; it is an electronic piece of paper with transactions listed on it. Just a bunch of 1s and 0s in a bunch of computers backed by absolutely nothing. Blockchain itself is a valuable technology freely available to anyone. However, you are not buying blockchain when you buy bitcoin; you own none of the tech behind it. To illustrate, imagine someone had found a cure for cancer and posted the step-by-step instructions on how to make it online, freely available for anyone to use.

Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trademarked it and started selling it to the highest bidders. I think we can all agree a cure for cancer is immensely valuable to society blockchain may or may not be, we still have to see. But how much is a Cancer-Pill worth? However, as the money flows in, another person would without a doubt create a pill using the same freely available instructions and call it Cancer-Away. Cancer-Away may not initially be as recognizable as Cancer-Pill, so it might fetch a smaller price, but eventually both prices would converge as they are essentially the same thing.

Over time, with more and more cancer-curing pills with different names arriving on the market, the price of all of them would converge to something very close to the cost of production i. I think we can all agree this is a good thing, as it means the maximum number of people will be able to cure cancer at the lowest possible price. How does this apply to bitcoin? All you need is a website and some hype. The bottom line is that while a cancer pill would be valuable, it would not be a good investment to buy up the pills for far above the cost of making them, if the formula for making them is freely available to anyone.

Similarly, buying bitcoin, or any other e-coin, is a bad investment even if you truly believe blockchain technology will change the world. Believe me, those people know exactly what they are doing. No, not at all, the technology used in creating bitcoin is great. The problem with the current crop of e-coins and blockchain applications is easy to illustrate. Imagine a world where only bitcoin exists, and you are going to buy some milk.

What would be the price printed on that milk carton? Aside from the fact that, at current prices, this would be some seriously expensive milk, the answer is that no price could be printed. And then by the time you got to the cash register, the price would have changed again.

If a centimeter or inch on a measuring tape were constantly changing in physical size, it would not be particularly useful to ask for a six-inch sub. It might end up being the size of an airplane. The thing that makes cryptocurrencies such a speculative craze, their stratospheric increases in value, is also the reason the current crop will likely fail in their intended use as currencies.

The decentralized fraud proof ledger might be used to keep track of balances in another exotic currency called the Canadian or U.

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what is bitcoin and why is it valuable


Transactions on the Bitcoin network are unstoppable. Cryptography is one of the very few fields in the 21st century [1] which continues to heavily favor the defender. Using cryptography, an average person can defend themselves from even governments and large companies. In fact, they had to wait to arrest him until he was at os public library with his computer open where they could snatch it before he was able to close it and lock the computer cryptographically. Using the most powerful computer in the world, it would. For starters, the bitcoin network is the most powerful computer network in the world. As the price of bitcoin increases relative to fiat currencies, miners receive higher fees, incentivizing them to devote yet more computer power, which makes the network more powerful and creates a positive feedback loop.

what is bitcoin and why is it valuable

A Brief History of Money

Bitcoin is a peer-to-peer digital currency that can be safely and instantly sent to any person in the world. This currency is like electronic moneywhich you can share with friends or use to pay for your purchases. Bitcoin is a currency unit of Bitcoin. Physical bitcoins also exist, but, generally, bitcoin is just a number connected to the address. Physical bitcoins are just si like coins with inbuilt number. The main article: Satoshi Nakamoto. Satoshi Nakamoto is the name used by the unknown person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation.

As part of the implementation, they also devised the first blockchain database. In the process they were the first to solve the double-spending vaouable for digital currency using a peer-to-peer network. They were active in ehat development of bitcoin up until December Considering Bitcoin is a new technology, at first it can be unclear what it is and how it works. People often see Bitcoin as one of three options:.

If you spend much time online, you, probably, often meet an advertising of different scams. These ads usually promise big benefit for simple work. Most often they convince people to buy certain block of shares that will bring ones pots of money.

But in fact, customer has to spread more those ads without any gain. Bitcoin has nothing in common with such schemes. Bitcoin does not promise superior returns. Bitcoin is an experimental virtual currency, which is going to be a success or fail.

None of the developers expects to get rich because of it. The majority of people using Bitcoin does not benefit from this, and client in the form it is distributed does not give you the opportunity to earn. Few people with special highly productive equipment earn Bitcoins by " mining " creating new Bitcoinsusing special software, but Bitcoin should not be considered as a path to wealth.

Most users participate in this project, because they consider its concept interesting, but they do not benefit from it. Bitcoin makes its first steps. Maybe great things await it in the future, but now it's just a technology that can be offered to the people interested in conceptual projects or new technologies.

Bitcoin is a new, interesting e-Currency, and its value is not supported by governments or organizations. Like other currencies, it is vakuable something, because people us willing to exchange it for goods and services. Its exchange rate is constantly fluctuating, sometimes very strong. Bitcoin lacks wide recognition; it is vulnerable to manipulation by persons without large assets.

Security incidents, such as hacking a website and leakage of the accounts, can cause serious problems with uncontrolled anf of currency. There are other probable fluctuations that can trigger feedback and cause much larger changes in the exchange rate. Anyone who invests in Bitcoinshould understand the risk he takes, and consider Bitcoin as a currency with a high level of risk. Later, when the Bitcokn becomes more famous and widely recognized, it may stabilize, but at this point everything is unpredictable.

Any investment in the Bitcoin must be exercised with a clear risk management plan. You can buy the physical bitcoins with PayPal, but it will be more difficult and expensive with electronic coins, because of the significant risk for the seller. There is a method of buying Bitcoins via PayPal, but it is anr to a large commission. Despite you may find someone who wants to sell you Bitcoins via Paypal, perhaps using bitcoin -otcmost exchanges does not work with PayPal.

It is related to the high incidence ig fraud: people paid for bitcoins via Paypal, received their bitcoins, and then sent a complaint to Paypal about not getting a purchase at all. In this situation, PayPal often iss the side of the cheating buyer, so sellers have to insure against risks by higher commissions or complete rejection of Paypal. Purchasing Bitcoins from individuals is still possible, but the valuzble must be sure the buyer will not complain to PayPal, to get his payment.

Go here bitcoins are generated through the " Mining " process. During the process, which is bitcoiin to a permanent lottery, hosts are awarded with Bitcoins every time they find the solution to a mathematical problem and thus create a new block.

Creation of block is a work proof and complexity of the process varies with the growth of network. Award for the creation of the block is adjusted automatically. Thus every four years of the networking half of bitcoins is created, that bitcoon been si over the past four years. During the first 4 years January - November 10, Every four years, this amount will be divided in two; it will be equal to 5, over the next four years, bitcojn 2,, and so on. Thus, the whst number of Bitcoins will never exceed 20, Blocks are mined every 10 minutes on average, and for the iit four yearsblocks each block contained 50 new Bitcoins.

Since the amount of processing equipment used in mining increases, the difficulty of creating new Bitcoins is growing. This complexity factor is calculated every blocks; it is based on the time it took to create the previous blocks. Their number is constantly increasing. How many parts bitcoins can be divided to? Bitcoin can be divided to 8 decimal places. It is also called "Satoshi" in honor of the founder of Bitcoin. If necessary, the protocol and software can be modified to work with smaller amounts.

Id are international SI prefixes for hundredths, thousandths and millionths parts. The use of existing national symbols of money, faluable as "cent", "nickel", "dime", "pence", "pound", "penny", is not supported, too, because it is a worldwide currency. In the end reward for block declines from 0. Reward for the block is calculated as the bitwise shift of bit integer to the right, so it is divided by two and rounded.

If the original bitcojn was 50 BTC, then how many 4-year periods bitcoins have to be mined to reach zero? How much time it takes to create all the coins? The last block generating coins will be the block numberwhich should be created in The whyy circulating number of coins will be 20, Even if permitted accuracy increases from current 8 decimal places, the total circulating number of BTC will always see more slightly below 21 million assuming that everything else will remain unchanged.

For example, with accuracy of 16 after the decimal point we finally would get 20, Even before the coins are over, commissions for the bihcoin included in the blocks will certainly become more rewarding for the creation of new blocks than the valuwble themselves. When all coins are created, these commissions will support the use of Bitcoin and Bitcoin network.

The number of blocks botcoin can be created is vakuable. Because of a law of supply and demand bitcoins will cost more, provided their number reduces.

So if some bitcoins are lost, others will grow in price to compensate. If the value of Bitcoins whah, number needed for purchase will decrease.

This is deflationary economic model. Bitcoin protocol uses the basic block from one hundred million Bitcoins "Satoshi"but unused bits bitvoin you to work with even smaller parts. Bitcoin protocol allows using lightweight clients that can work without downloading on your computer the entire transaction history.

As traffic grows and this point is becoming increasingly important, methods are developed to implement such concepts. Major network vakuable will become more specialized services. With the help of some changes in the software full Bitcoin nodes will be able to catch up with VISA and MasterCard, but it will require a fairly humble hardware one high class server by today's standards. It is worth noting that the MasterCard network structure is similar to the Bitcoin - it is also a broadcast peer-to-peer network.

Bitcoins are valuable because they are useful and their quantity is limited. The cost of bitcoins will be stable depending on that how bitcoln sellers will http://trackmyurl.biz/cboe-bitcoin-options-trading-431.html wares and services using bitcoins. Here you can find the wyat of sites, where you can pay by bitcoins. When we are talking that any currency is confirmed by the gold it means that theoretically you can trade this currency for gold.

Bitcoins as well as euro or dollars are confirmed by nothing except sellers, who accept it. Also in spite of deficit is the most important demand for useful currency, deficit itself is not valuable. In case there will be any confidence in bitcoins, this web page the fact waht the http://trackmyurl.biz/how-to-invest-in-bitcoin-trading-237.html of bitcoins will decrease, is not important.

Demand will decrease and speculators in foreign currency will valuble to sell it as soon as possible. Iw a situation can be observed by example of state currencies in that cases when the state falls to several separate states and the currency of this state is not issued any more as the central body issuing new money disappeared. In spite of limited quantity of money in circulation, its value decreases whu the confidence in its spending power is decreasing.

Yes, it is, as euro and dollars are soup bubble and a fraud. But such possibility is hardly probable: even in Somalia where the state has fallen to pieces 20 years ago, Somali shillings are still accepted for payment. In Ponzi scheme its founders persuade investors that they will grow rich. There is no central body, there only people who are building economy. Ponzi scheme is a play with zero amount of money.

Those who have been involved to the scheme earlier will grow rich at the expense of those who were involved later. Bitcoin has win-win variants. Those who have been involved later and all society in general, will win due to stable, fast, cheap and widely-distributed p2p currency. The fact that people being involved earlier will get more profits does not mean that bitcoin works according to Ponzi scheme. All reliable investments have the same features.

Why is Bitcoin So Important?

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