An asset with a high price does not necessarily mean it is valuable. Conversely, an asset with a large fluctuation in price does not mean its value is only a result of speculation. Bitcoin's value comes from several benefits it provides to people, and we can compare Bitcoin to other assets that are considered valuable to better understand its value.
One indicator that an asset is valuable is if it remains valuable across time (Saylor). Gold is one example of an asset that has maintained its value for millennia. Another indicator that an asset is valuable is if investors increasingly invest in that asset. An example of this is property. In my opinion, Bitcoin's price does not represent the value it provides because its price changes primarily due to speculation rather than fundamental indicators of success, such as the adoption of the technology by the public.
Instead of examining Bitcoin's price, we can examine its unique characteristics to better understand its value.
Consideration #1: Bitcoin's Rules and Design
Bitcoin's supply is designed to be scarce and predictable. Only 21 million Bitcoins will go into circulation, and the emission schedule is unchangeable. This is different from the rate of increase of a fiat currency which is decided by economists influenced by short-thinking politicians. The emissions of Bitcoins is maintained by Bitcoin's decentralized consensus mechanism, proof of work. This is different from traditional financial systems that require trust to be placed in the system to use it. In this capacity, Bitcoin's design is more similar to using cash than digital financial services like PayPal or online banking.
Disadvantages and advantages exist when using a decentralized currency with a fixed supply. The most notable disadvantage is that it results in a more volatile price than controlled fiat currencies, making it a challenging medium of exchange. For example, spending $100 on groceries one week and $200 the following week is impractical due to a currency's volatility. The advantage of Bitcoin's fixed supply and emission schedule is it may make it a better store of value than an inflationary currency like the US dollar. Bitcoin's scarcity is outside the control of any centralized entity, which is especially important in countries with currencies controlled by corrupt governing entities. This is the value it provides to individuals, allowing people to store their wealth safely.
Consideration #2: Privacy and Providing Banking Services to Those Who Cannot Access Banks
Another reason Bitcoin is valuable is because it provides an alternative way for people to transact with one another without the need to give up their privacy or be accepted into a traditional financial system. Anybody with an internet connection can hold, send, and receive Bitcoin. Bitcoin, at its core, is only software and allows billions of people who cannot open bank accounts to keep their wealth. What is not typically ignored by your Finance Bro are the +2.5 billion people who cannot open bank accounts because they lack access to a physical bank, proper documentation to open a bank account or a basic education of what it means to store wealth (Antonopolous). Bitcoin solves this problem. Interacting with the blockchain provides pseudo-anonymity, meaning your financial information is private unless somebody connects your account number to your identity. This is because the blockchain is open, meaning anyone can search for an account number online, showing the entirety of an account's transactions. This is where the pseudo in pseudo-anonymity comes from. People who claim cryptocurrencies are tools for money laundering conveniently ignore this fact. These critics are also unaware of the enormous amounts of money laundering done by banks and that the number one currency used for money laundering is not Bitcoin but the US dollar (Ammous & Antonopolous). Bitcoin is free to use for everyone and provides access to a digital method of storing value worldwide without having to trust in any central authority. The fact that anybody can use Bitcoin without identification is not a disadvantage but a feature. Our financial lives should be private without being scrutinized by banks, as it always has been historically. I believe this is the misunderstood aspect of Bitcoin.
Consideration #3: Immutability and Finality
All transactions that have occurred on the Bitcoin network are irreversible. They are computationally impossible to reverse (barring future quantum computing advancements). This means that all funds you control and have received cannot be undone or changed by a centralized authority. There is a living proof of the transaction that will forever exist. The ability to publicly keep track of this financial information without it being able to be manipulated by those in power allows for increased financial freedom. Bitcoin is a technology that cannot be removed from the world; it is simply software released in 2009, regardless of whether governments ban its use.
In summary, Bitcoin provides an alternative way to store and exchange money that is open, immutable, transparent, free, and decentralized. That is why it is valuable.
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