What makes Bitcoin valuable?
The reason most people don’t question our existing monetary system is because it’s the only system they’ve ever experienced. It probably hasn’t changed much over their lifetime.
Everyone has come to accept that increasing prices in everything, from food to education, is a natural phenomenon. Most know that increases are a natural consequence of inflation, but few know that main cause of inflation is manipulation of the money supply by the central authority. Humans are creatures of habit. When we get used to something for too long, it’s hard to accept than an alternative could be better.
In today’s digital age, the ideal cryptocurrency should have the following three attributes:
- It should not be controlled by any authority. This way, money cannot be manipulated or printed and no one can be told what it can and can’t be used for.
- It should be borderless. There should be no restrictions between countries or regions so it can be exchanged between people everywhere.
- It must be apolitical so a particular political system or group of people are not privileged.
These are the features of Bitcoin that make it an attractive alternative to a monetary system that relies on reputation.
Bitcoin was the first decentralised digital currency and its value mainly comes down to it being the first digital currency that no entity or authority could control. Anyone can buy it and nobody can tell people what they can or can’t use it for.
Bitcoin’s supply is fixed by its protocol and by being part of the network, participants agree with this protocol. Details such as the the rate at which new Bitcoin is circulated and the approximate release date of the final Bitcoin are known to everyone. There are no individuals who can influence the direction of the currency either.
Bitcoin is free from political pressure, control and excessive inflation. For people living in extreme conditions is it a safe-haven. Bitcoin has a limited supply of about 21 million — this number will never be changed, we’ll know how much can be produced and when it’ll run out.
To people in developed countries, it’s hard to explain why decentralised currencies are valuable. Money in these areas is usually more resistant to inflation, but the existing system is unreliable in other ways.
Problems with fiat money
Any kind of money controlled by a central bank isn’t too sound when you look at the bigger picture.
The problem is that the value of fiat money has been slowly declining since fiat money was removed from the gold standard, paper money is now unsecured and potentially unlimited.
In most instances, governments make a promise that the value of money will always be accepted by vendors in exchange for goods and services. This allows them to fully control their country’s money supply.
The reason for this is simple: Governments tend to spend more money than record on their budgets; to do this they print money for their own needs. As more money is printed and funneled into the economy, it reduces the value of all the money currently in circulation.
Bitcoin’s features are having a positive impact on people’s lives in unstable economies where the government is heavily manipulating its money. Some countries have experienced periods where their governments printed huge amounts of money from their currencies. Citizens could not spend their money fast enough before it was useless, their savings were also devalued.
This cycle has happened many times in many countries and ultimately brought about the collapse of their monetary system. Affected citizens need an alternative exchange environment.
In 1912, Ludwig von Mises, a renowned Austrian economist, gave his “characteristics of hard money” in two ways in the Theory of Money. It must be a widely used medium of exchange in the market and that is free from government interference.
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