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Ever wondered why Rs 100 is worth the amount we assume it is? A few years ago, when the government demonetized a few currency units, 500 and 1,000 became worthless overnight. So what gives 2,000 its value today?

Of course, theres the intricate relationship in supply-demand metrics, but it boils down to trust! The trust we place in the government and the monetary system in place. Bitcoin (BTC) is not issued by a central bank or backed by a government, so where does its intrinsic value come from?

When we talk about Bitcoins value, aspects such as decentralization, distribution, scarcity, security and systems of trust simultaneously play a role.

No single entity can make decisions on everyones behalf. Distributed ledger technology (DLT) is non restrictive and permission-less. They are transparent and secure. DLT's does not store information in any one place. Instead, it distributes information across a peer-to-peer network. All network participants have access to the distributed ledger technology (DLT) and its immutable record of transactions.

Scarcity & TrustA Bitcoin's main source of value is its restricted supply and increasing demand. Its supply is programmed to be limited. Unlike traditional money, Bitcoins aren't printed out. Instead, they are mined out of the system. Bitcoin relies on a decentralized network of independent nodes to approve consensus-based transactions.

In simple terms, a miner has computers (or nodes) running the mining program. Only 21 million BTCs can ever exist.

An asset that is scarce can command a high price, while one that is plentiful will have a lower price. There has been a decrease in Bitcoin supply since its inception. There is a fixed rate at which Bitcoins can be created, and that rate is designed to slow down over time.

After every 210,000 blocks, or roughly every four years, the number of Bitcoins minted per block is reduced by 50%.

Miners solve transaction-related algorithms that verify Bitcoin transactions with software.

As a reward, miners receive a certain amount of Bitcoin per block. This way they are provided an economic incentive to continue solving transaction-related algorithms, thereby supporting the overall system. Miners not only verify and validate transactions but also ensure that new Bitcoins are added to the system at a predictable and constant rate. This is where trust comes into play again.

Bitcoin users need not trust each other but just need to trust the token's technology and the level of security. There is a cost of production for Bitcoin, it depends on the block reward, cost of electricity, mining difficulty and energy efficiency of miners.

As there will be only 21 million BTC, what happens when all of them are mined? Since these tokens are issued per block at a decreasing rate approximately every four years, it is expected that the last Bitcoin will be issued in 2140.

Around 2140, the amount of BTC in circulation will remain fixed at that level. This number was arrived at taking into consideration the average time taken to verify and create blocks, which is supposed to be ten minutes.

So every 10 minutes, a certain amount of BTCs are introduced into the supply, but this supply is designed to be reduced by 50% every 4 years.

Whats driving the economics behind BTC right now is the supply limitation, which makes it scarce. Once all the BTCs are mined, the underlying economics is bound to change. What miners will rely on then is transaction fees.

Bitcoin was originally conceptualised as a medium of exchange, but is more often than not used as a store of value.

This ecosystem is still developing, so its underlying narrative could undergo another transformation between now and when the last BTC is mined. So what will the economic incentive for the miners be when all BTCs are mined? They will be rewarded through transaction fees.

When it comes to any asset of value, the price one agrees to pay for the asset is generally socially agreed upon and based on supply and demand metrics. As BTC is digital currency, one that is not tangible, many have criticised its actual value, failing to grasp the scarcity and cost of production metrics.

BTC is often equated to monopoly money - fake. But those who understand the scarcity and intricacies of the protocol see value in this.

(The author, Darshan Bathija, is CEO and Co-Founder, Vauld. Views are personal)

Read the original here:
What determines the value of Bitcoins? - Economic Times

Around the world, venture capitalists have collectively invested $30 billion in cryptocurrency or Web 3.0 startups throughout 2021, with institutions like Tesla, Block, and MicroStrategy all incorporating Bitcoin into their balance sheets.

These astronomical figures are made all the more impressive considering that Bitcoin, the worlds first cryptocurrency, has only existed since 2008 and has since accumulated a value of $41,000 per coin, at the time of writing.

2021 represented a boom period for Bitcoin, as decentralized finance and NFTs grew into the ecosystem, presenting fresh opportunities for investors and enterprises alike, but the year also ended with brand new challenges for the asset as global inflation rates hit the pockets of investors hard.

As geopolitical tensions in Eastern Europe spilled over, it represented an unprecedented test for the staying power of Bitcoin. Although its early days, we can see evidence of Bitcoin trending upwards in the wake of Russias invasion of Ukraine suggesting that the asset is still regarded as a safe haven asset for investors amidst a testing economic landscape.

Institutional interest in Bitcoin and the wider cryptocurrency landscape is rife. Besides leading trading platforms like Coinbase, a growing number of institutions are investing in various crypto projects. In the case of software developer MicroStrategy, the company is simply purchasing BTC with the intention of holding it on its balance sheet.

Others have developed tools to enable the broader integration of cryptocurrency into the economy. Silvergate Capital, for instance, operates a network that enables the around-the-clock remittance of dollars and euros a key capability as cryptocurrency markets never close. To facilitate this, Silvergate acquired the stablecoin assets from Diem Association.

Elsewhere, financial services company, Block, has been looking at developing applications for everyday use as a digital alternative to fiat currency. Google Cloud also launched its own blockchain division to help customers accommodate the emerging technology.

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As more institutions look to develop blockchain and cryptocurrency solutions, its highly likely that it will result in considerably better staying power for the likes of Bitcoin and other crypto. In turn, better institutional interest is likely to help to keep cryptocurrencies anchored in spite of their famous levels of extreme volatility.

Emerging use cases in the field of blockchain have also paved the way for NFTs and DeFi projects to gain prominence, broadening how cryptocurrencies can influence the world.

Perhaps most significantly of all is how Bitcoin has recently demonstrated that its technology is capable of becoming a mitigating force against factors that can cause economic downturns.

To illustrate this, Maxim Manturov, head of investment advice at Freedom Finance Europe, notes how Bitcoin was swiftly made legal tender in Ukraine in the wake of the Russian invasion in February 2022:

Ukraine has legalised cryptocurrency. President of Ukraine Volodymyr Zelenskyy signed the law on virtual assets adopted by the Verkhovna Rada of Ukraine on 17 February 2022, Manturov noted.

The National Commission on Securities and Stock Market (NSSM) and the National Bank of Ukraine will regulate the market of virtual assets. What provision does the adopted law on virtual assets make? Foreign and Ukrainian companies will be able to work officially with crypto-assets, open bank accounts, pay taxes and provide their services to the people.

Significantly, the move also helped Ukraine to set up an avenue to receive humanitarian aid in BTC.

Due to Bitcoins decentralized nature, the asset may help during national emergencies throughout countries around the world particularly when economic complications lead to the devaluation of fiat currencies through hyperinflation.

Despite Bitcoin still sitting some 40% adrift from its all-time high from November 2021 today, institutional faith in the cryptocurrency remains. Deloitte figures suggest that 88% of senior executives believe that blockchain technology will eventually achieve mainstream adoption.

Its worth remembering that it wasnt until recently that Bitcoins blockchain framework finally began to achieve the levels of global recognition for its technological framework that it deserved. Since then, weve seen the rise of DeFi and NFTs as a taster of what distributed digital ledgers can achieve.

Although its hard to predict just how the adoption of cryptocurrency will grow, and whether it may take another NFT-style emergence to act as a catalyst for more mainstream applications, the fact that Bitcoins technology is playing an active role in aiding economies in the face of an economic crisis shows that theres enough potential for the asset to not only outlast its expectations but to outperform its benchmarks during downturns.

Although there are likely to be more twists ahead before the global economic outlook recovers, Bitcoin is already showing that its use cases can ensure that crypto is very much here to stay in one form or another.

This article was originally posted on FX Empire

Originally posted here:
Why Bitcoins Navigation of Recent Global Economic Downturns Shows that Crypto is Here to Stay - Yahoo Finance

Changpeng Zhao, Founder and CEO of Binance, in a recent podcast spoke in favor of a bright future for Bitcoin. The Bitcoin adoption process has already taken off in many parts of the world. But CZ is convinced there is much to come in an increasing divided world.

CZ thinks the US-China economic war and the Russian invasion of Ukraine can help the adoption of Bitcoin. As the U.S dollar is being increasingly used in economic sanctions, more countries are likely breakout from the dollar hegemony. CZ says,

The world is becoming more divided. When the world becomes more divided, guess what? People will tend to try to use the currency as a tool to enforce sanctions etc. When you do that a lot, people look for a neutral thing to use, which is cryptocurrency.

While regulations have halted headwinds for Bitcoin adoption in recent months, more regions are looking at state adoption. Prospera in Honduras and Madeira in Portugal are the latest to adopt bitcoin as their de factor legal tender.

Another growth aspect was observed in the recent Bitcoin Miami Conference in early April. There was a turnaround of over 30,000 crypto enthusiasts who attended the three day event.

It was the highest audience ever recorded for a crypto-themed event. This also refers to a growing awareness about blockchain technology and cryptocurrencies in general. Individual adoption is also rising meteorically. A report by Crypto.com said,

We expect the number of global crypto owners to reach 1 billion by the end of 2022. Global crypto population has increased by +178% in 2021, rising from 106 million in January to 295 million in December.

Then CZ claims the limitations (of blockchain) are limitless). He is referring to the massive opportunities that are rapidly increasing because of Web 3.0.

The rise of NFTs, smart contract platforms and even the traditional cryptocurrencies have opened many gateways for the development of blockchains. Many countries are now competing to become a crypto hub such as Dubai, UAE, Australia followed by the United States.

It is perhaps true in the case for cryptocurrencies that With great technology, comes great responsibility. Sceptics of cryptocurrencies have often used logical arguments when questioning their need in the financial systems.

The environmental damage of Bitcoin mining is a very common criticism used by government officials. The lack of trust of major economic institutions for anything related to crypto is a major obstacle.

But is Bitcoin going to be here for the long haul despite these warnings? Definitely seems so.

See the original post here:
How Binance's CZ makes a very optimistic case for Bitcoin in the future - AMBCrypto News