What is Bitcoin and Why Does it Have Value?

What is Bitcoin and Why Does it Have Value?

What is Bitcoin

In layman’s terms, Bitcoin is a digital asset that is transacted among individuals, companies and other entities via the blockchain network. It is designed to work as a medium of exchange (much like traditional currencies) that utilizes cryptography, therefore many of its users coin it (pun intended) with the term ‘cryptocurrency’.

You don’t need to buy a whole Bitcoin like this

The key difference between Bitcoin and traditional currencies is that Bitcoin operates on a decentralized network, meaning there is no government or other ‘centralized’ organization behind the creation, recognition, and circulation of Bitcoin. In fact, Bitcoin relies on infrastructure that is supported by its users and industry participants such as Bitcoin miners.

Bitcoin has been, since its inception, the leading cryptocurrency in the market. It has a total market capitalization of more than USD$120 billion and accounts for more than 60% of the market capitalization of all cryptocurrencies at the time of writing.

Why does Bitcoin have value?

To someone who is new to Bitcoin or the concept of cryptocurrency, it is not uncommon for them to question the value of Bitcoin. At close to USD$7,200 per BTC at the time of writing, the sentiment among newcomers includes ‘it is too expensive already, I think I have already missed the boat’. The authors of this article believe this is far from the truth.

Firstly, even though it has been more than 10 years since the inception of Bitcoin, a lot of people are still not familiar with its divisibility. Each user will not need to own a whole Bitcoin. In fact, there is a view within the Bitcoin community that as time progresses and as Bitcoin gains further adoption, it would be uncommon for the average person to have enough resources to own an entire coin. The smallest unit of Bitcoin is called the Satoshi, which represents 0.00000001 BTC. There is no harm to own, for example, 0.05 of a BTC, as it is still a sizable investment after all!

Secondly, Bitcoin, similar to many other assets, derives its value from the concept of utility. If an asset can be used in a way that satisfies human needs, then it has value. The vice versa is also true. The utility of Bitcoin lies in two domains: 1) its utility as a medium of exchange; and 2) its utility of being a store of value. Bitcoin’s utility as a medium of exchange is very evident in regions where the financial system is fragile, the cost of cross-border money transfer is high, capital controls are unreasonable, etc. In those regions, Bitcoin is often used as the preferred medium of exchange over traditional legal tender. Having said this, Bitcoin’s utility as a store of value is also invaluable. Many investors and participants in the Bitcoin community view Bitcoin as the ‘digital gold’. Put simply, it has all the attributes of gold, including being scarce, divisible, fungible, durable and resistant to counterfeit. Also, Bitcoin is far easier to store and transport compared to gold.

Ultimately, the utility of Bitcoin both as a medium of exchange and store of value stems from recognition and mass adoption. The mass of followers that Bitcoin has gathered over time is a key factor that Bitcoin carries as much value as it does today. In other words, the popular adoption of Bitcoin as an asset grants value to the asset itself. The authors believe that at the time of writing, Bitcoin has already passed what people label as ‘critical mass’, meaning that it has obtained sufficient recognition in the community which makes its continued growth a high likelihood event.

Interested and wondering where you can get your Bitcoin?

It really depends on where you are located. However, we list a few below:

Binance.com is the largest cryptocurrency exchange by trading volume.

Kraken.com is known for their powerful trading engine and customer-friendly interface.

Liquid.com is suited for advanced traders, given the breadth of functionalities, it has, including margin trading and lending abilities.

Coinstash.com.au is the newest platform in Australia to buy and sell Bitcoin, more suited to new traders due to simplicity.

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