15 1 2 - What provides value to Bitcoin and how you can estimate the same
January 30, 2022
15 1 1 - What provides value to Bitcoin and how you can estimate the same

Economics 101

Answering this query is quite straightforward and is based on the basics of economics: scarcity, utility, supply, as well as demand.

In other words, the term “rare” means that something is uncommon (scarce) and beneficial (utility) it must possess worth and be demanded at a particular price regardless of other factors being equally valuable. Making 1K daily profit is easy if you know how to.

Consider gold for instance. Why is it that gold costs so much? In simple terms, it’s fairly expensive because it’s difficult to come by, and has limited availability (scarcity). Gold has a variety of applications that consumers gain pleasure by (utility).

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Combining these two components creates value, which is determined by the market’s demand and supply.

What does this all have to have to do with Bitcoin?

Similar to the gold that we have, Bitcoin can be considered to be scarce, and its supply is in short supply. It is currently 16.2m Bitcoin in circulation and the most that could ever be in circulation is set at 21 million. The set limit is well-known, making its scarceness transparent.

To be valuable, however, Bitcoin must also be beneficial. Bitcoin can be used to create utility in many ways.

As with the gold that we have, Bitcoin is perfectly fungible (one Bitcoin is similar to another) and it’s divisible (you can give an individual a tiny fraction of Bitcoin in the event that you wish to) and is easily verified (via blockchain technology). Blockchain).

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Bitcoin isn’t just limited, it also comes with a utility

Bitcoin is also a great cryptocurrency with other features. It’s quick, free of borders, and decentralized, with the potential to transform the way we conduct business. It doesn’t just offer value as a payment system however, it also serves for an asset class (storage of wealth). It’s also beneficial since it is built on open protocols. This means that anyone can create their own ideas to enhance the functionality of the system.

Bitcoin is also a proven asset even when compared with other, more recent cryptocurrencies. There’s no other cryptocurrency as well-known and widely utilized to the present. Because of network effects, we’re beginning to see exponential growth that creates value when increasing numbers of people begin utilizing Bitcoin and more businesses accept Bitcoin as a method for payment.

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At the present, there are thousands of merchants across the globe accepting Bitcoin as a form of payment. This is increasing the value of Bitcoin.

For instance, take telephones. When the first phone came out, it offered low value, as nobody was using it. However, as users began using it, its value increased exponentially.

The same goes for Bitcoin the more people begin using it and gaining an understanding of Bitcoin, the greater valuable it becomes to all others.

How is the cost of Bitcoin is decided?

The cost that is paid for bitcoin does not necessarily mean the exact value of its price. The price will be determined by the marketplace where it trades by the combination of demand and supply. It’s the same way that the cost of your second-hand car, the apples you buy in the market or an ounce of gold, and almost everything else is decided.

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Bank accounts of traders within our recognized countries are able to trade Bitcoin via Luno Exchange. Luno Exchange sets the exact price for a particular date for a particular market. Luno does not decide prices for traders, it’s a trader (buying as well as selling via Luno) can.

In simple terms, it’s the constant interactions between buyers and sellers trading with one another that determines the precise cost for Bitcoin (and all other things).

When determining the price you must also take into consideration the number of money buyers is currently willing to pay to purchase what they believe will be the future worth of a product. Also If the market believes the value of something- like the value of a property, bitcoin, or stock- will rise in the near future the buyers are more likely to purchase the item now.

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A few of the scenarios where Bitcoin is currently can be used to benefit society was listed in the previous paragraph, however since Bitcoin is an ever-changing and growing technology, many are hopeful that there will be many more applications to be discovered. Perhaps, some that we’ve not thought of.

Why is the price changing every so often?

This is known as volatility, and it’s not the only Bitcoin exchange rate that seems to fluctuate from the day each day. The cost of many things like currency, stocks, oil, and a myriad of other commodities are extremely fluctuating, shifting upwards and downwards against the basic exchange rate (such as the US dollar).

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The overall Bitcoin market remains small compared to other industries. It does not require large amounts of money to shift the price of the market upwards or downwards, which means the cost of Bitcoin is still a bit fluctuating.

However, the fluctuation in Bitcoin has been decreasing and has been much stabilized in recent years.

What has happened to the price of Bitcoin changed in the past?

We’ve created a bitcoin price Calculator page where you can find out what value of Bitcoin was for Luno at any point over the years.

There you have it. In simple terms, If something is useful and rare, it will be demanded an amount of value and have an amount. Bitcoin is both valuable and scarce, therefore it has value and an amount, that is determined by supply and demand. Remember that the worth in Bitcoin and the cost of Bitcoin do not necessarily mean the same thing.

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