Lesson: Bitcoin Value Laws
Lesson 3: In previous two posts https://steemit.com/bitcoin/@husamia/lesson-the-essential-of-bitcoin and https://steemit.com/bitcoin/@husamia/lesson-the-basics-of-cryptocurrencies-and-bitcoin I talked about cryptocurrencies and the essentials of bitcoin. You learned that bitcoin is not 100% anonymous and you must keep your wallet keys secure to proctect your money. Also bitcoins are stored in a public ledger called the bitcoin blockchain and can be viewed using blockchain explorer https://blockchain.info/. You can trade, purchase or mine bitcoins. bitcoins are not minted like fiat money rather they are discovered or "mined" using specialized computers due to competition and increased difficulty. In this lesson we will learn:
- Bitcoins have value which is determined by the laws of supply and demand.
- Bitcoin prices in exchanges are influenced by news events.
- Bitcoin is limited in supply to 21 million units
Bitcoin Supply
what's the values of Bitcoin? all currencies have an agreed upon variable exchangeable value by the seller and buyer. Bitcoin is a currency because people have agreed that it possess value. It's exchangeable just like gold, silver, food, salt, goods, etc. The pricing of bitcoin is set solely based on supply and demand within the bitcoin community of sellers and buyers. There is no central governing body like the federal reserve to bank to influence the price unless they participate in the supply and demand. Bitcoin is still in it's infancy today and so it's price is easily influenced by news and rumors. However, I think that as bitcoin continues to mature we will see less fluctuation in price compares to prior years. Governments of EU, China, Japan or the US are expected to announce bitcoin regulations which in turn will influence the price positively or negatively based on what sepeculators think it will affect it's growth. Other factors include internal bitcoin issues. For example miners meet to decide to make changes to the Bitcoin protocol. The price may go up or down based on if they reached agreement or not.
Supply and Demand of Bitcoin
according to initial design of Bitcoin software algorithm, the supply of total bitcoin is fixed to a limit of 21 million units. The number of people in the world that use Bitcoin is very small so the price is expected to fluctuates greatly. As more people use Bitcoin its value of its' network will increase and this is continuing to happen and expected to continue in new future. At beining of year 2011 the value of one bitcoin was worth less than one USD, at the beginig of year 2017 the value of one Bitcoin was worth more than 1000 USD. Bitcoins in circulation are limited to 21 million in total. And new Bitcoins are discovered at a predictable and decreasing rate (currently at 12.5 bitcoins on average every 10 minutes). The demand for Bitcoin must follow supply increase to keep the price stable.
To summarize
the value of Bitcoin will continue to grow with more people start using and trusting it and believing it continues to have value in future. This is seen as the number of users, merchants and startups is growing. Bitcoin value is determined by the willingness of people accepting it as payment.
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