How to Know the Value of Bitcoins?
Bitcoin is a digital currency that paves the way for all the online transaction problems
we face on a day-to-day basis. You would think the system we currently have is good
enough, but everything we buy today has to go through a bank or credit card company
that takes a part of the transaction, and we rely on their faith that they will do it right
and protect our purchase from being mapped.
Later, the payments start to build up along with added charges for security by your bank
to keep all your information safe.
Value of bitcoin history
Even with the use of online transactions and payment options, there was one problem.
How do you prove that you have paid for something or you have the money at all
without someone vouching for you? It got so severe that it has a name, the
double-spending problem.
Then in 2008, a solution was offered by an unknown programmer going by the name of
Satoshi Nakamoto. Nakamoto left a paper on a popular cryptography blog which
proposed a system of currency that solves all of these fiddly problems. It was released
publicly in 2009.
The proposal was that, instead of a bank or credit card enterprise recording every
transaction in a central ledger, all the users would record all operations at the same
time. As a result and any attempt to fool the community would be noticed, and the
payment would be rejected.
No one user, government, or bank can force a fee on a payment or control its flow, and
the result is a cheaper, faster, and easier way to spend money even across national
borders.
This was when cryptocurrencies came into play. Bitcoins, the most popular
cryptocurrency, has now become a financial asset for people. The value of bitcoin is
somewhat hard to determine.
There is a specific framework to be followed to determine the value of bitcoin today
correctly. It is vital to know the history of the value of bitcoin and how the value of
bitcoin over time has only increased.
Factors which influence the value of bitcoin over time
Bitcoins are digital currency and have little functions like cash or fiat money, but still,
they are connected to the laws of basic Economics. You might think that there are
complicated rules associated with it, but that is not the case.
The concepts that rule the cash currency have no connections with the price of bitcoins,
but some ideas overlap with the cost of bitcoins and have an impact on its price. The law
of demand and supply very much determines the price of bitcoins.
It is also determined by the acceptance of bitcoins in a country and by market
sentiments.
Let us take a closer look at the factors that determine the value of bitcoins.
#1 Demand and Supply of Bitcoins
Bitcoins, unlike cash currency, is finite and scarce. So, the demand and supply are
determined by its utility and availability. The price is low when there is an ample
amount of bitcoins available, and the price rises when there are fewer bitcoins left to
mine.
There are also other factors associated with the determination of the price of bitcoins.
The acceptance of bitcoins by online transaction companies or merchants will lead to a
high demand for bitcoins, which in turn will surge the price of the bitcoins.
In May 2019, the highest value of bitcoin has surged up to $9000, which is the
highest dollar-denominated value in the last one year.
#2 The cost of mining Bitcoins
One of the main reasons for the rise in the value of bitcoins over time is the rise in
the number of people who are contributing to it. While bitcoins may be a digital
currency, they do have a real-time cost of production. Bitcoin mining is based on
complex crypto graphics mathematics problems that the bitcoin miners strive to solve
over days and months.
The first miner to solve it receives a reward of newly minted bitcoins. On average, the
complicated bitcoin algorithm lets you produce one set of bitcoins every ten minutes.
#3 Competition with other cryptocurrencies
The value of bitcoin now is $7,185.14. The rise of bitcoin has caused a significant
rush in the market for all cryptocurrencies. Traders and investors are continually
pursuing other cryptocurrencies like Etherium, Peercoin, Litecoin, and Dogecoin.
#4 Legal rules and regulations
Another factor that affects the price of bitcoins is the acceptance of bitcoins as a legal
tender in a country. If a state deems it to be illegal, then the demand for bitcoins will fall
drastically in that country and will affect the market for bitcoins overall.
As revealed by the value of the bitcoins chart, many countries are still reluctant to
invest in this cryptocurrency and have banned it in their respective countries.
#5 Stability in forks and governance
We all know that the whole concept of bitcoin is not to have a centralized authority or
administrator. This means its investors and traders only determine the price of bitcoins.
The mining of bitcoins is entirely dependent on software-driven solutions, which, if not
solved, can be frustrating for the community. As the demand for bitcoins is increasing,
the difficulty in scaling its production is doubling too.
There are specific rules which govern the software, and they are called forks. The bitcoin
community has come up with two kinds of solutions, and one is called the soft fork,
which changes the rules of the software but does not create any new currency. The other
solution is the hard fork, which brings about the production of a new block of
currencies.
It is essential to know the various factors which drive the price of cryptocurrencies,
mainly bitcoins in the market. This volatile asset can sometimes be too overwhelming to
tackle.
Before you start investing in bitcoins, thorough research is imperative. It is but obvious
to say, never invest more than what you can afford to lose at your end. Knowing what
you are investing in and by how much is what crucial in this fast-paced market.
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