Tuesday, 20 June 2017

What Makes Bitcoin Valuable?

            People often ask ‘What is Money backed with?’

The truth is that money is not backed with anything, and it has never been backed with anything, the Euro is not backed with anything in particular, and neither is any other currency in the world. And gold, for example, is not backed with anything; some people think that, gold has value because we use it for jewelry, but it's actually the other way around. Gold is valuable because it is very scarce, and because it’s very scarce it has been the best ledger we have found in five thousands of years. So, in that respect, bitcoin exchange, buying & selling bitcoin would be no different than doing the same with gold. 

In bitcoin we have something that is as good a ledger as gold, meaning that it’s incredibly scarce (there will never be more than 21 million bitcoin), much more scarce than gold.

A lot of people are just seeing the carts and thinking how high it will go. But what some people are doing is counting backwards; this is a transactional currency, and it’s a store of value, as such it’s a product and a service competing in a very tangible market, for stores of value and for transactional currencies. So, what is the science of that market, and, how much, how big a market share can bitcoin realistically take within a foreseeable timeframe, when you ask that question, then you come up with a market cap of bitcoin total, and then you define that by the number of bitcoin in circulation by your estimated time, and seeing how Chinese are buying bitcoin like crazy – this number has actually had to be adjusted upwards – then you come out with a best bitcoin rate of, about, $2/$5 million per bitcoin.

Bitcoin, or the blockchain encryption that’s behind it has a greater ability to bring more of the world’s population out of poverty than anything else. At first glance it’s digital money, but if you look a bit deeper, then you see that is just one of the applications enabled by an underlying network that allows a distributed system of computers to build a global assets ledger.

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Is Bitcoin a New Gold?