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Bitcoin: Why It Has Value Despite Being Digital

As a digital currency which is gaining traction despite its existence only limited to the online world, one might wonder as to why exactly bitcoins have value.

 

Before going into the economics explanation of why it works, let’s first know what it is. Bitcoins came about in 2009 as a product of an anonymous creator’s effort to create a currency that’s completely digital. Bitcoins are “mined” to be able to get generated. This means that people run a series of complex mathematical formulas in their computers to mine bitcoin. The anonymous creator put the limit on the maximum volume of bitcoins at 21 million. After that, the generation of bitcoins will automatically stop.

 

Despite the digital currency having no central government and no regulations, it gaining popularity. More and more countries are accepting it as a legitimate currency and even started trading them on the forex market. People can now purchase goods and services using bitcoins.

 

But why does it have value if it does not exist outside of computers? Unlike gold or cash which have physical manifestations, bitcoins cannot be touched. So why does it work? The answer is simple: subjectivity.

 

The very same reason that paper money works. In the old times, what people did was barter. Goods were directly exchanged with goods. For example, sugar can be exchanged for fruits. This is the real buying and selling. To make it easier, people invented paper money which they then assigned value to. So now that we’ve set this paper money to have value against every goods and services, buying and selling has become much easier.


The same goes with bitcoins. Bitcoins have value because people choose to believe it has value. Of course, it's not as simple as that. You must earn money and this is the equivalent of mining bitcoins. Although not all countries legally accept them yet, they continue to exist because of the following reasons: popularity, decentralization, and security.

Created by : Joan
Published : 07 Apr 2016

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