Bitcoin has value for two key reasons:
- Thanks to its features, some people find it useful as a way to store and exchange value.
- Because a group of people agree it has value.
Historically, people have used everything from seashells to bottle caps as money, but arguably the most enduring form of money is gold. Why?
People settled on gold thanks to its rarity, its durability, and its divisibility. These features made gold useful as a method for storing and exchanging value.
Bitcoin is often compared to gold because it has similar characteristics. Namely:
- It has a limited supply. There will only ever be 21 million bitcoins.
- It’s easily divisible. You can divide one bitcoin into 100 million pieces.
- It’s durable. A huge globally distributed network of independently operated computers tracks Bitcoin ownership. This ensures that no bitcoin is lost.
Beyond this, Bitcoin has a few other important features which allow it to bring gold’s monetary properties to the modern digital era. These are:
- It’s easy to send bitcoin. Sending any amount of bitcoin to anyone in the world can be done in minutes and with a 100% guarantee of security. It’s almost like sending an encrypted email.
- It’s easy to verify the authenticity of bitcoin. Actually, it’s effectively impossible to transact with fake bitcoin.
Thanks to the utility of gold, the gold ‘network’ – to use a modern term – grew over time until gold became almost universally accepted as having value. Although Bitcoin, which started in 2009, is much newer than gold, Bitcoin’s network efforts benefit from the scale and speed of the modern Internet. The number of people who place value in Bitcoin has grown at an exponential pace since inception to the point that Bitcoin’s value is now closing in on gold’s – and that may be just the beginning.