Understanding the Bitcoin Economics

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How does bitcoin work? Why is it worth it? This article answers these questions and other questions related to bitcoin economics.

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Although bitcoin has been around for 13 years now, there are many questions, speculations, analysis and arguments going on. Of course, bitcoin has now become a common household name. But other than those who use it or are part of its more extensive network, many ordinary people do not understand the economics of bitcoin.

What is it?

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For starters, bitcoin is simply a digital currency. Like the physical dollar or other fiat currency, you can use bitcoin as a means of payment. However, unlike fiat currency, bitcoin does not have a physical state. Additionally, while governments centrally control fiat currency through central banks, bitcoin is decentralized with no single controlling entity.

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Bitcoin is also a digital asset that some consider to be ‘digital gold’. This is due to the high value of bitcoin as an investment asset. Trading in bitcoin is a lucrative business. Like you can trade in different cryptocurrencies through bitcoinsAnd you can also trade in bitcoin through various crypto trading platforms.

bitcoin price

The best place to understand the economics of bitcoin is its value. Two questions will guide this. First, does bitcoin have value? Second, assuming that bitcoin has value, what does this explain? Let us answer each of the following questions.

The answer to the first question is yes. Bitcoin has value. And this is true because bitcoin has a price that determines its value. Although the price is volatile, it still means that bitcoin has value. For example, on September 12, 2022, the price of bitcoin is around $22,000. The price can change at any moment and go up or down. The mere fact that bitcoin has a price means it has value.

Additionally, the issue of whether bitcoin has value is that it has value as it also serves as a store of value. You can buy bitcoins and hold them as a store of value. Instead of keeping fiat money in the bank, you may decide to convert it to bitcoin. And this means that bitcoin has value, although due to the high price volatility, the value can change at any moment.

On the second question, the value of bitcoin is due to its scarcity and use. The maximum supply of bitcoin is 21 million coins. After reaching that maximum, there will be no more bitcoins. More than 90% of this is already in reserve. Therefore, as the supply of bitcoin continues to decline, demand continues to increase.

Additionally, it is difficult to counterfeit bitcoin due to its blockchain technology. Blockchain creates a decentralized and distributed digital ledger with no single centralized control or management. Everyone on the bitcoin network can view and verify every transaction in bitcoin. With millions of miners on the bitcoin network, it is virtually impossible to spend double.

bitcoin as a means of payment

People use bitcoin as a means of payment. Like the dollar or the euro, people can use it to pay for goods or services in many retail outlets. Many retailers accept bitcoin payments. They do it because they know it has value. If it lacked value, no retailer would take it as payment.

Although the acceptance of bitcoin as a form of payment is not everywhere, such as fiat money, this does not mean that it lacks value. We must realize that bitcoin is only somewhat old, as opposed to fiat money which is quite old. So, many people may not know or understand it very well. Nevertheless, with the increasing trend in digital payments, bitcoin will become more widely accepted as a means of payment.

take away

The economics of bitcoin are simple. It mainly revolves around its value and its uses. To better understand bitcoin, you need to understand the underlying blockchain technology and how it works.

Image by Petre Barlea from Pixabay



Credit : www.newsbtc.com

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