What Has Caused Bitcoin’s Price To Skyrocket?
How Does Bitcoin Work?
Bitcoin is a person-to-person digital cryptocurrency that operates without the involvement of your usual financial establishments (meaning there are no banks involved). Bitcoin provides a direct digital alternative to our typical physical currencies and commodities (such as euros and dollars or gold and silver). Bitcoin transactions take place online directly between the buyer and seller, with each Bitcoin having its own unique encryption. Transactions are recorded on a decentralized public ledger available for network users to verify valid transactions. Special users on the network called “miners” oversee this verification process. The way in which the total number of bitcoins continue to grow is after verifying a block of transactions, miners are paid with the newly generated bitcoins and the transactions are processed and approved.
Economics Behind Bitcoins Spike In Value
In the last year the value of a single Bitcoin has risen by more than 400%, this massive increase has granted Bitcoins investors large economic gains. So why is this? The main rationale would be that there is a great demand for Bitcoins and a limited supply. As more individuals want to exchange other currencies for Bitcoin, it’s value increases. Bitcoin has a fixed supply with roughly 1800 coins created per day in the form of block rewards. Many believe Bitcoin to be a smart investment in the current market, resulting in consumers purchasing Bitcoins and holding onto them thereby decreasing the amount of Bitcoins in circulation.The available supply decreases thereby increasing demand. As the demand increases and if supply stays the same or decreases the value increases (standard economics). The value that one receives from exchanging it determines the actual utility of the Bitcoin. As more and more retailers, organizations, and individuals accept Bitcoin as a form of payment, it’s utility will increase thus increasing demand, causing the value of Bitcoin to increase in turn. The biggest factor that really has really allowed the value of Bitcoin to skyrocket is decentralization. Bitcoin is a completely decentralized system. This means that there is no overseeing, or central, organization that can influence the currency directly (and no that doesn’t mean you can associate Bitcoin with a monopoly). In our current system, a government backs a traditional currency such as the U.S. Dollar. The U.S. Treasury decides when to print more money and the Federal Reserve controls the supply. Although this system provides security for the dollar, it allows these organizations to have nearly complete control over the dollars value. If the government decides to increase the supply of money for any reason, when more money is printed, the value of the dollar decreases and can cause inflation. The inflation results in the same amount of dollars acquiring the consumer fewer goods than before. There is no organization that can determine the amount of currency in circulation within a decentralized system such as Bitcoins. There is no central bank to have any sort of control over the money supply. Instead, it’s scarcity, utility, supply, and demand that dictate the value of an individual Bitcoin.
Works Cited
Bitcoin - Open Source P2P Money, bitcoin.org/en/.
“Bitcoin Breaks $5,000 in Latest Price Frenzy.” Fortune, fortune.com/2017/09/02/bitcoin-price-breaks-5000/.
Coindesk. “Bitcoin Price Index - Real-Time Bitcoin Price Charts.” CoinDesk, www.coindesk.com/price/.
Mining?, What is Bitcoin. “Everything You Need to Know about Bitcoin Mining.” Everything You Need to Know about Bitcoin Mining, www.bitcoinmining.com/.
“What Is Bitcoin?” CNNMoney, Cable News Network, money.cnn.com/infographic/technology/what-is-bitcoin/.
This is a very interesting topic and something not a lot of people know about. I am not familiar with Bitcoin but it is interesting how much the value can increase just based on the supply and demand for the coin. I am confused on how it started and how the money is transferred but it seems like it would be a very good investment to put my money into Bitcoin as it could gain a large economic profit over a period of time.
ReplyDeleteI agree, mainly because bitcoin had dropped out of the public eye for a while before this resurgence. I definitely feel the bitcoin is a confusing currency, without much info around.
Delete