What Gives Bitcoin Value?

One of the topics confusing a lot of people is what gives Bitcoin value. The opinions on this topic will vary heavily as there does not seem to be a clear-cut answer to this question. At the same time, there is no wrong answer to this question as there are a number of factors that give Bitcoin its value.

Also read: How To Short Bitcoin?

What Gives Bitcoin Value? A Difficult Question

Its hard to say Bitcoin has intrinsic value as neither governments accept Bitcoin nor can you use it to pay your taxes. Plus, the value of Bitcoin is always linked to traditional fiat currencies such as the USD, EUR, CNY, and GBP. Furthermore, intrinsic value of a stock is calculated by summing up it’s projected future income, since Bitcoin doesn’t quite have an income its hard to determine it’s intrinsic value.

So what does gives Bitcoin value, albeit not an intrinsic one? Usability is an interesting topic to touch upon, as there would be no reason to give Bitcoin value if people could not use it as a payment method. Merchants and service providers all over the world accept the digital currency, even though most of them convert it to fiat currency on the fly. 

Perhaps it is the blockchain technology that gives Bitcoin value? The answer to that question is both yes and no, considering how the technology is open source and can be used by anyone regardless of Bitcoin itself. While it is certainly true the Bitcoin blockchain is a versatile tool; blockchain technology isn’t the only feature which gives Bitcoin value.

Furthermore, there is the questionable status of Bitcoin. Is the digital currency a commodity, is it a security, or is it a currency? Different countries classify Bitcoin differently and even in the United States different agencies classify Bitcoin in their own way. Bitcoin does not have value in the “traditional sense”, it does not mean Bitcoin has no value at all, far from it even, but the traditional rules of what gives something value do not apply to digital currency.

Another important factor that gives Bitcoin it’s value is the amount of hash power that is backing the Bitcoin network. The current Bitcoin hashrate is over 1.2 exahash. An exahash is the equivalent of 1,200,000,000 GH/s. We will use a ocnservative amount of 1 Watt / Gh/s as our unit for conversion to see how much electricity the Bitcoin network uses.  At that rate, we arrive at 1200 Mega Watts, which is the rough amount of electricity that the Bitcoin network is using. According to the Public Utilities Commission, 1 MW of power can power around 650 American homes, so 1000 MW means the electricity used by the Bitcoin network can power up to 650,000 American homes. That amount of power dedicated to nothing but verifying transactions and preventing double spends for a single network is bound to have an effect on the network’s value.

Additionally, Community members might argue it is the spirit of supply and demand under free market rules what gives Bitcoin value. Up to a certain extent they are correct, as there is no one controlling the Bitcoin price other than the people willing to buy and sell the digital currency. On the other hand, the free market takes away any price floor for Bitcoin, as the value keeps fluctuating on a daily basis without any regulatory body step in and keep volatility under control.

While Bitcoin doesn’t have a projected income like a company’s stock would, Bitcoin’s network has a projected adoption and user rate. Bitcoin’s value is derived from the underlying technology it’s based on, the amount of power and resources and are being contributed to secure such a network, and the fact that there is a need in this world for a currency which is global, instant, and affordable.

What gives Bitcoin value in your opinion? Let us know in the comments below!

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