In the contemporary financial system, cryptocurrencies have so far gained much popularity among its users. One biggest example is Bitcoin. If you are a regular viewer of
latest Bitcoin news today, it said about Bitcoin; the famous cryptocurrency is the foundation of Satoshi Nakamoto, a developer. Ever since its launch, it became people’s most favored crypto coin. It was all because it ended the role of central authorities like the government and banks. Instead, it is controlled by decentralized network technology, which works on rules which are transparent by those who are familiar with its use. There have been many discussions regarding the pricing of bitcoin. But more than that you need to understand why cryptocurrencies have value.
Why Cryptocurrencies Have Value?
Currencies become worth for use if it stores value, or to say in other words, it must be reliable to count on for keeping up its relative value over time and not getting diminished. By going back to historical times, we will discover the trend of many societies, who used to trade commodities and many precious metals as payment methods as they had stable value.
The reason which made these currencies worth for use was that these contained reliable stores of value and were made from those metals which had a longer shelf life and lesser possibility of fading out. Then with the emerging modern phase, minted currencies got changed into paper money, which did not feature the same essential value comparatively to the coins that were made from precious metals.
However, people more likely to used electronic currencies as payment methods. There are some currencies that consider themselves as a representative, which means you can directly exchange the note or coin for a specified commodity. It has been noticed that fiat currencies are issued by the government, and don’t have the backing of any commodity. But they are rather backed by the trust that government and individuals have that party and will certainly accept it. Today most global currencies are fiat but come with poor durability, which means they prone to be harmed or loss of value.
3 Key Factors Which Compares Bitcoin with Fiat Currencies
All currencies need to have utility to run effectively. Individuals must be confident enough and reliable with currency trade units of goods and services. With the successful launch of Bitcoin in 2009, the developers stated the supply of tokens to be capped around 21 million. By taking note of the current bitcoin supply which is approximately 18 million. The rate on which bitcoin was released is expected to come down to half every four years. The supply of the bitcoin is expected to cross 19 million by the year 2022. This indicates that there won’t be any changes in the protocol. So let us see what lies ahead for bitcoin.
Bitcoin’s major selling points is its use of blockchain technology. Blockchain comes as ledger technology that is decentralized and cannot be trusted blindly. But big applause for the verification system, which is helpful in maintaining the ledger and new bitcoins mining. With such flexibility, it is indeed blockchain technology that contains utility.
Fiat currencies often have an issue with durability, especially in their physical form. As an example, a dollar bill, despite being strongly built can be burned, torn or moreover can be left as unusable. But compared to it, digital payments are not vulnerable to such physical harm. In that way, bitcoin proves to be a valuable cryptocurrency. It cannot be tempered like a dollar bill.
So now you must have understood the reasons why cryptocurrencies have value by citing 3 key factors that define the advantage of cryptocurrencies over fiat currencies. Usually, currencies that have good value have a longer life. But to achieve that it needs to maintain it also, or else, it may lead to adverse results in economic perspective. It is because there are certain cases where digital currencies have become prone to hacking, fraud, and theft. It can be avoided by referring to proper regulatory methods to save the economy from fall.