Bitcoin and other virtual money have been touted as possible alternatives for fiat money. Bitcoin enables efficient money transfers via the internet and is governed by a decentralized network that adheres to a clear set of rules, making it a viable substitute to central bank-controlled fiat money.
There has been considerable debate about how to value Bitcoin, and we aimed out in this article to explore how bitcoin pricing might appear in the event of increasing adoption. To start, though, a turn back is required.
Currencies are valuable because they may be employed as a medium of trade and a store of wealth. Effective currencies have six critical characteristics: scarcity, divisibility, usefulness, mobility, durability, and counterfeit ability. Bitcoin is valuable because it satisfies all six of these qualities. Still, its primary problem is its lack of acceptance as a unit of exchange since most companies have yet to accept it as payment.
Bitcoin's usefulness and transferability are jeopardized by the challenges associated with bitcoin storage and trading. If, on the other hand, bitcoin gains broad acceptance and captures 15% of the international currency trade and bitcointalkshow.com (presumed to reflect all 21 million bitcoins in existence), the total price per bitcoin would be about $514,000.
Why Are Currencies Valuable?
Currency is useful if it acts as a store of value, or, to put it another way, it can be relied upon to retain its relative worth over time and without degrading. Goods or rare stones were employed as payment in many cultures throughout history because they were seen to have a reasonably constant worth.
Societies progressively moved away from needing individuals to carry huge quantities of cocoa beans, platinum, or other early forms of money and toward coined currency. Nonetheless, many instances of coined money were useful because they were stable stores of value, composed of metals with long shelf life and minimal danger of devaluation.
In the modern-day, manufactured currencies are often issued in paper money, which lacks the inherent worth of coins composed of precious metals. Individuals, on the other hand, may use electronic money and payment systems. Certain currencies are based on the concept of “representativeness,” which means that each coin or note may be immediately exchanged for a defined quantity of a product.
Limited Availability, Divisibility, Utility, And Traceability
Apart from being a store of value, a good currency must also satisfy criteria for scarcity, divisibility, usefulness, processability, durability, and counterfeit ability. Take each of these qualities one at a time.
The supply of a currency is critical to its value preservation. A high money supply may result in a rise in the price of products, culminating in economic collapse. A deficient money supply may also create economic difficulties. Economics is a sociological ideology that emphasizes the importance of currency in the wellness and growth of a society (or lack thereof).
In the case of fiat currencies, the majority of governments continue to create money to manage shortages. Numerous countries operate with a predetermined level of inflation, which helps to devalue the fiat currency. For instance, in the United States, this value has historically remained around 2%. In comparison, bitcoin has a variable production cost that varies over time.
The successful currency is divided into smaller incremental pieces. Monetary must be substantially flexible to accurately affect the quality of all accessible commodities and materials that a business holds. To operate as a medium of exchange for various commodities and values within a society, a single currency system must possess the flexibility inherent with this divisibility.
A currency must possess usefulness To be successful. Individuals must be able to exchange money units for products and services in a secure manner. This is a major motivation for the development of currencies in the first place: to alleviate the need for market players to barter directly for commodities.
Moreover, usefulness requires the simplicity of transferring money from one location to another. Burdensome precious metals and commodities have a difficult time meeting this criterion.
Currency must be easily transferred between economic players. This implies that currency units must be convertible both inside a country's economy and between countries through trade in terms of fiat currencies.