Learning Crypto: Where Does Bitcoin Get Its Value?

in #bitcoin4 years ago (edited)


Welcome to Learning Crypto.

I’m taking it way back to the basics.

This is a new series of videos that I’ll be publishing about once a week that will be focusing on the common questions asked by those who are just beginning to scratch the surface of bitcoin, cryptocurrency and blockchain technology.
This is Learning Crypto.

Today we are going to explore the question: Where does Bitcoin get its value?

So let’s compare Bitcoin to other mediums of exchange that are considered valuable, like fiat currencies and gold.

Gold has been a staple of wealth for thousands of years.

Due to its appearance, durability, and scarcity, gold has maintained a level of faith and understanding as a stable form of value for a very long time.
Fiat currency first began as an extension of gold.
It was a lightweight paper representation of an amount of gold that was accounted for and stored somewhere safe. In 1971 the U.S. president Nixon took the USD off of this Gold standard. So we are now left with the USD which is now backed by nothing more than confidence in the U.S. government. It’s also worth it to note that this also means there is potentially an unlimited supply of USD that can be printed. This can cause a flooding of the supply and weaken the strength of the dollar.

Now let’s take a look at Bitcoin.

Bitcoin was designed by an anonymous individual who goes by the pseudonym Satoshi Nakamoto.
He designed Bitcoin in such a way that in order to unlock a new Bitcoin, one would need to have a computer that would run a specific program.

Essentially, the computer running the program solves mathematical equations and sends its results to the Bitcoin Network. If the network is satisfied with the work that the computer accomplished, that computer is rewarded with a new Bitcoin.
Every 4 years the difficulty level for these mathematical equations increases, in fact, it doubles.
This requires more computational power, meaning more expensive computers and more energy needed to run them. This all means more money needed to invest in producing Bitcoins.

One other aspect to Bitcoin is that there is a limited number of coins ever to be produced, that number is 21 million.
This guarantees that hyperinflation will not occur and according to the law of diminishing returns, the price will continue to rise.

In addition to how they are produced, Bitcoin has properties like:

  • Fast transactions
  • Send it across borders
  • Complete control of your wealth
    This means no need for a third party to store it for you, like a bank, which often times practices fractional reserve banking. If you are not yet familiar with fractional reserve banking, I think it is well worth your time to look into it.

So now that you have a better idea of where Bitcoin derives its value, in the future we will be looking at:

  • Why other cryptocurrencies exist & how they are different
  • How to purchase your first cryptocurrency
  • How to store them safely
  • General best practices when it comes to managing your cryptocurrency investments.

Additional Reading:

More on gold
More on fiat currency
Fractional Reserve Banking
Highly Recommended Book on the Banking System- Focuses on Fractional Reserve Banking
Nixon removes Gold Standard
What happens when all Bitcoins have been mined


Another little piece of note...if you use the comparison of Rarity, 1 bitcoin is as rare as 19 lbs of gold...assuming ~363,762,732 lbs of mined gold currently in the world, and 21 million bitcoin.

Thats about $388,000 USD per bitcoin.

Here is why I think cryptos have value they can be used as a utility:

You see we are moving into a world of computational trust as people, governments and companies lose trust in each other. What do I mean by 'computational trust': hundreds of thousands of computers witnessing a transaction. New technology known as a token called bitcoin blockchain is a 'utility' and since it can be used like money some are doing such like me and my friends. The utility is: the most secure data base ever invented. As simple as that. My analogy is: picture it like a big spread sheet (an excel spread sheet) with 21 million cells. Each cell has a password assigned to it and that is called the keys to that cell. These keys can be transferred to other cell keys and are then owned or controlled by the new keys. There is even an open source protocol that releases these cell ownership controls over time ensuring decentralization and utilizing consensus systematic for any updates.

So now, what's the big deal in having a spread sheet that you can transfer cell ownership rights to each other? This spreadsheet is validated by lots of processing power every 10 minutes. Validated; means witnessed or notarized by the community and to date more processing power is validating the bitcoin blockchain than has ever been used for a single purpose in the history of mankind. Now then how does it become money or a type of currency: it becomes money when a value is attached to the controlling or ownership of the cell. Why would someone want to own such a utility or a portion of it? There is value in someone notarizing (witnessing) contracts in a manner so secure it has had zero down time and zero hacks or errors from the early stages - currently (bitcoin) now running over 9 years worth of 10 minute blocks of transactions. I call it triple entry accounting: a transaction 1) buyer 2) seller 3) witness by ledger and community (hundreds of thousands of witnesses). Or debit, credit and witness. You can sell services on this backbone and therefore owning control allows for a return on investment.

you are right greenman....boss

We need to take the power and abuse out of the banks hands and place it where it should be....in the person's hand who owns it. It should never cost us money to use OUR money! This amazing tech gives us that opportunity and so much more. The future is in the blockchain and hopefully the tangle as well. I believe in both. I believe they can coexist forever and we can all be millionaires for using it now! Cheers guys! Let's watch it grow and help it!

However, when determining price, one must also consider the amount that buyers are currently willing to pay for the future value of a specific item. In other words, if the market believes the price of something --like property, a certain stock or Bitcoin-- will increase in the future, they are more likely to pay more for it now.
Some of the instances where Bitcoin currently has utility was mentioned above, but since Bitcoin is an evolving and improving technology, many are optimistic that there are many other use cases to come. Some, perhaps, that we haven’t even thought of yet.

greenman.i think i feel this piece of information...please follow @legitimatefreak.thank you

good effort


Great explanation

HEIDI! this is my favorite video thus far! that ostrich and you made a good combination. Props to the cameraman too for the genius zoom!

Very informative towards the value of all crypto in general thank you!

@kevbot, I agree with you with this being my favorite so far ;)

Nice Island, where is this located?

No island, that is South Africa

This is awesome! That ostrich was too cute! Great video on beginning Crypto!

Wow! This is EXACTLY what I need right now! I have been a member of SteemIt for almost a year, but I've only recently begun to see the potential of investing in crypto.

I've been reading articles and watching videos for the past two weeks, yet I've not come across any that were really made for newbies like myself.

I think your new series will be just what I need to get a well-rounded crypto education. Looking forward to them!

Thanks for doing this series, Heidi. Your videos are a huge help to me, so I'll definitely be keeping an eye out for how this one develops so I can share it with my friends in Facebooklandia. :)

Bitcoin and crypto in general is better than gold. It is something that can be rare as gold but is easier to spend than money if fully adopted. Crypto is the future and we have the privilege to one of the first to get into this strange new world and profit from it.

@heiditravels the Ostrich wanted to listen to you about Cryptos. He or She has pulled their head out of the sand. He or She wants to be aware of Bitcoin before the public really catches on....................

Any ideas on the upcoming hard fork? Are you going to consolidate your holdings into bitcoin to potentially receive more of the new currency?

I say myself and to others as a Bitcoin fan and early adopters, yesterday while travelling in train with my friend he asked me where this Bitcoins comes from, so wasn't able to answer him even after knowing the answer. But I guess now I can answer it easily after reading this article. This article has helped me to brainstormed my knowledge. Thank you Heidi.

Let say crypto is better than gold but still these currency is digital with no physical representation. Let say the world will reset back to stone age crypto will surely lost its value but the gold will remain. Gold can be use in electronic production. The only downside in gold wad it was being control

True. But again it's trend, it may loose value and gain again back when people believes thats the beauty.

A wonderful overview...and thank you for the links for further reading!

A clarification on this...

"Every 4 years the difficulty level for these mathematical equations increases, in fact, it doubles."

  • Every 4 years the block reward halves.
  • Every 2 weeks the the difficulty changes -- it can become either more difficult or less difficult, depending on how fast the network is solving the blocks. The goal is to add a block every 10 minutes.

Yes thank you for this clarification. I'll add this info for future videos!

yup, on average every 10 mins - could be a couple an hour or a dozen an hour :-)

difficulty changes up or down every 2,016 blocks. 2016 * 10 mins = 20,160 mins = ~2 weeks

block reward halves every 210,000 blocks

If you noticed the ostrich you're gay.

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hey there heidi! i love your youtube videos and im happy that you made this post for the beginners out here! thanks for taking the time to making a beginner's series! keep on providing value to the community and i look forward to your next blogs! cheers! :)

Coins, in my opinion, are simply a perceived value since their only purpose is to be held in anticipation of a rise in price or exchanged, there really is no substance. I believe Tokens have a much truer valuation because you can place a sort of value to the services and features that they enable.

Great post @heiditravels.
Nicely explained.

How about where does steem gets it's value?

Also why steem can be use as currency and replace bitcoin

Oh and no fees

Hi Heidi! I've finally signed up for Steemit. Thank you for your great work. Hope you fortune for helping so much people around the world with your knowledge. Best wishes!

Hey @milfont, great to see you here :)

I saw the ostrich... but I think I also saw another animal stalking in the background. Watch your back out there, Heidi!

Good historical summary of money and of the current problems with the current fiat currency backed system.

Bitcoin is inherently deflationary as opposed to current fiat currency in the world, which is inherently inflationary.

Looking forward to you getting a little more into the significance of the decentralization aspect :).

Yes, I've done quite a few posts that dive deeper into the beauty of decentralization, but I'll be covering that and many other topics in a way that will help beginners wrap their heads around it with this "Learning Crypto" series :) p.s. that was a troop of baboons in the background as well.

Thank you
I see that the cryptomoneda is a trend, so i want to learn from this.
I'm going to stay here, stuck!

Mm. The great thing about beginner videos is that their great even for people that know their way around a bit.

I spotted the baboons, but there was something to the right during the first part too. Maybe a lone baboon?

I've seen your videos floating around for some time and have been a follower, but I confess that I've only just started really reading and looking at the videos in their entirety. Welcome to the age of skimming, I guess. There's just so much material, much of it good, on the platform.

Anyway, keep up the good work and I look forward to more stuff from you :).

Good job.

It is valuable because people buy it. And there are only so many people can buy of a single coin like bitcoin. only 21 million coins. Making a scarcity element.

Yup, these aspects are covered in this post :) If you watch the video you get an extra nugget of entertainment as well since the wildlife was active that day.

Don't forget to add your amazing posts to the Steemit Worldmap!

Hi @heiditravels, This is my very first comment on your posts. I just followed you and went through your previous posts, you're doing a fantastic job. I hope to follow you regularly. Authors like you are an asset to Steemit community. So, keep posting, supporting and rocking. Thumbs up!

Steem On!

good post .

Always great to see your videos. That ostrich was awesome. I was thinking, BTC also has value because it costs money to extract it, right? Like the cost of mining gold - it sets a kind a floor on the price. Though not a tight floor, since supply is fixed.

Seeing as I'm new on the cryptocurrency bandwagon I appreciate the clear explanation Heidi

This is pretty awesome really you did very well job.

The algorithm behind blockchain is ingenious, making Bitcoin's value difficult to ascertain. Nonetheless, since the worldwide adoption of Bitcoin is still in its early phase, its price should continue to increase in the presence of volatility.

this is a bit of a late to the party video, we have gone past the stage of explaining who satoshi nakamoto is

I'm going to have to disagree. We have yet to reach mass adoption.

Nice info about bitcoin..really helpful

Somewhat misguiding, anything scarce and fluid can have value, bitcoin and crypto in general isn't special in that respect, it just has an anonymity and liquidity that is unprecedented in finance.

I follow you on youtube as well.. Really cool videos thanks @heiditravels

I am fan of Ripple coin (XRP)

It is a pity because Africans needs Cryptocurrencies the most, it could solve all the fundamental problems we have- but we had a slow optimization. For example; i got to know about Bitcoins early this year when i joined Steemit. So in my little Knowledge- Bitcoins got it's values from Many years of usage and publicity in most Advance countries......am not sure am making sense btw!

Good info and video, thank you for your work @heiditravels

Thanks @krazypoet, what did you think of the ostrich?

are you still in Portugal? Joining us for SteemFest?

I'm arriving in Portugal this week. Of course I'm coming, purchasing my tickets this week. By the looks of your video updates the venue looks amazing!

VenueS :) thanks, great, see you in Lisbon!

in blockchains we trust!
they have value because we ascribe to them and we ascribe to them because we choose to

( i choose not to trust fiats or baboons!! )

Heidi your a smart cookie :) keep traveling.

I think that if bitcoins would ever be produced more than 21 million, there will be a colapse on market and there will be a lot of riots ...
The goverment would not be able to have the power of the curency witch means they will be bringed down !

Thank You!

A Back-to-Basics series is a great idea, and very much needed. We are about to enter mass adoption within a few years at the outside, and this little nut needs to be cracked to make it sooner rather than later.

Привет!Прекрасное объяснение о bitcoin.Как думаешь,сколько он продержится?Ведь всему есть предел и bitcoin не вечен.Ведь есть взлёты и падения.

That is very informative!! Thank you for clarity @heiditravels

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Digital currency platforms
Platforms or Tile Platforms are the platforms in which digital currencies are programmed
And to benefit from its own block. The largest platform we find Ethereum, then NXT and
Bitshares, Omni, and Waves

another bitcoin lesson I learned...
great info.

Nicely explained.

As I write this, 1 BTC = 5,220 USD!

BTC has been riding on it popularity and convincingly ahead of other cryptocoins. Other reason, it is the first cryptocoin. The value seems to be increasing and many are looking forward for Bitcoin Gold. Increasingly, merchants have also started accepting BTC.

Any one with differing view, why some people consider Bitcoin as bubble? :)

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