How Crypto Currency Gains Its Value

How Bitcoin Gains Value

Crypto currency has been around for quite a while now, but gained much of its popularity in 2017, when Bitcoin took a major surge in value, waking the world out of its slumber towards blockchain technology and virtual currencies.  

While Bitcoin is still a buzz word, it is a poorly understood concept in many households around the world. People are starting to get their heads around what blockchain is, and where and how crypto currency can be spent, but a few things still remain a mystery.  

One of the topics of discussion, that people truly cannot fathom, is how a virtual money that is derived from mathematical algorithms can be worth anything at all. 

With more and more markets adopting crypto currency as a trade currency, it becomes more and more vital that the common man in the street understands the nature of the blockchain, as it is surely paving the way of future trade in the world. The tech industry have grabbed hold of it with both hands, retail markets are growing in awareness and online Bitcoin casinos are thriving on virtual currency as a form of trade token for table game and online slot entertainment. 

This article aims to educate the average person on where crypto currencies, like Bitcoin, derive their value from and offer comparison for how they work in comparison to normal currencies. 

THE HISTORY OF TRADE AND CURRENCY 

In order to paint a simple picture of the where the value of crypto currency comes from, we need to look at the nature of currency and trade as a whole, to gain some principles to give perspective of the subject at hand. 

The very first currency ever used was livestock and farm produce. The value of such currency was determined by the amount of effort and work put into bringing forth a cow or a bale of wheat, etc. Growing cows was more time consuming and expensive than farming fowls, therefore cows would hold a much greater value that hens etc. 

The barter system was therefore used, where people would trade their produce and livestock for the things they wanted and needed. Though this form of trade proved workable, with growing ideas and innovation, it proved to be a somewhat inconvenient form of trade. This forced people to look at other means and ways of trading and establishing wealth. 

The next form of barter, was in gold and silver. These precious metals were esteemed highly valuable, but not for no reason. Once again, it expended real effort to produce enough gold to be worthwhile, once again assigning value to the effort exerted in accumulating your wealth. Mining gold, silver and other commodities was a laborious affair expending much in the way of resources, hard work, and time. 

CURRENCY TIED TO COMMODITY  

It obviously became quite a burden to carry loads of gold around to trade with. Rich people would have to load up wagons of gold to buy estates etc. The invention of paper money and coins therefore become a much more workable form of trade. This currency simply became a representative of the amount of gold owned by people. This was called the gold standard. 

Today, the gold standard does not exist anymore. A country’s wealth is no longer determined by the number of minerals it owns, but is rather determined by other political factors. 

This form of currency is called fiat currency, and is intrinsically without real value. Fiat currency is used as a rate of exchange, simply because the government says that their currency has value. The currency then either strengthens or weakens based on external factors surrounding world markets.  

HOW CRYPTO CURRENCY WORKS 

If an argument is posed that crypto currency is valueless because there is nothing to base its value on apart from influential factors, such as popularity, the same can be said of fiat currency. Its value is based solely on influencing factors and is not tied to any commodity, anymore.  

But crypto currency is actually tied to a value. If we believe in the principle of work output associated to currency value like in the original currency bases, then crypto currency has a value. It takes time and effort to produce crypto currency. The currency is mined via complex mathematical algorithms, that only highly expensive mining machines can locate and register. This process is long and laborious.  

What’s more, is that crypto currencies, like Bitcoin are capped, so that they cannot carry on producing more and more currency. Once the cap is reached, no more currency can be mined. This is not so with fiat currency. There are no resources tied to the currency, therefore virtually unlimited amounts of money can be produced. Based on this alone, we find that crypto currency truly has a truer value than your country’s fiat money. 

Of course, things can be produced without much value. Value is established by the demand to utilise and own such things. A currency’s value is shown to work, so long as enough people agree that the said rate of trade is acceptable to them. If people are willing to accept such currency, then it is valuable to those holding the currency.  

Popularity has been the overwhelming influencer in the rise of Bitcoin and other virtual currencies. The more people investing in it, the more its value increases. As, such, there are a number of markets that accept cryptocurrency as a form of business. 

ADVANTAGES OF CRYPTO CURRENCY OVER FIAT CURRENCY 

Blockchain and crypto currency may very well be the trade currency of the future. Each time a currency replaced a form of trade in the past, it was not easily received, even though it showed great advantages every time. The same can be said of Bitcoin and other virtual currencies, which have been met with initial criticism, but are making inroads into the public sector and are expected to eventually be accepted as legitimate by all, as the advantages are clear: 

  • There are no middlemen or centralised banking system, which means that it is far faster and cheaper to transact in this fashion. If banking institutions fail and come to an end one day, the decentralised funds in blockchain will carry on. 
  • Crypto currency cannot be forged or reproduced, as each unit is secured by cryptographic keys and codes that are scanned by blockchain nodes to determine their authenticity. Once crypto currency is mined, it is given a hash. If it is then traded, that hash is what carries the value. Hashes cannot be reproduced without compromising the blockchain. They will therefore be stopped in their tracks immediately, if anyone attempts to corrupt the system. 
  • As stated earlier, crypto currencies are capped, which curbs hyperinflation, because it cannot be over issued. This principle stems back to the older and more reliable gold standard system. 

THOUGHTS ON THE FUTURE OF TRADE 

There were lengthy periods of time that elapsed between currencies and their successors, but as technology progressed, those times got shorter and shorter. Many economists foresee the change over from fiat currency to crypto currency as being one of the quickest transitions in our history, but of course, this remains to be seen. Though all indicators point to blockchain for the future, the form of crypto currency might well have evolved quite tremendously in the next decade. What we see now may still only be a crude representative of the next currency to dominate the world. 

A clue of the success of crypto currency can be gauged by its acceptance in the market place. The multibillion-dollar gambling industry is said to be at the forefront of modern technological advancements in the digital arena.  

Multiple casino operators are moving towards crypto currency as their sole currency of trade, which speaks volumes for the reliability and feasibility of the currencies and its hopes for the future.