Why do Bitcoins Have Value? and How Can We Get Bitcoins?
By: Youvandra Febrial
Tags: Mining Bitcoin, Make Money Mining Bitcoin, Bitcoin Value, Buying Bitcoin

Before you know bitcoin and how you get it, you must know and understand what bitcoin is. I will explain in a detail.

ilustration bitcoin

What Is Bitcoin?

Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.

Bitcoin is a type of cryptocurrency. There is no physical bitcoin, only balances kept on a public ledger that everyone has transparent access to. All bitcoin transactions are verified by a massive amount of computing power. Bitcoin is not issued or backed by any banks or governments, nor is an individual bitcoin valuable as a commodity. Despite it not being legal tender in most parts of the world, bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly abbreviated as “BTC.”

Who invented bitcoin?

In 2008 the domain name .org was bought and an academic white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was uploaded. It set out the theory and design of a system for a digital currency free of control from any organisation or government.

The author, going by the name Satoshi Nakamoto, wrote: “The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”

The following year the software described in the paper was finished and released publicly, launching the bitcoin network on 9 January 2009.

Nakamoto continued working on the project with various developers until 2010 when he or she withdrew from the project and left it to its own devices. The real identity of Nakamoto has never been revealed and they have not made any public statement in years.

Now the software is open source, meaning that anyone can view, use or contribute to the code for free. Many companies and organisations work to improve the software, including MIT.

Peer-to-Peer Technology

Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the bitcoin network — bitcoin “miners” — are in charge of processing the transactions on the blockchain and are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin.

These miners can be thought of as the decentralized authority enforcing the credibility of the bitcoin network. New bitcoin are released to the miners at a fixed, but periodically declining rate. There are only 21 million bitcoin that can be mined in total. As of June 2021, there are over 18 million bitcoin in existence and less than 3 million bitcoin left to be mined.

In this way, bitcoin and other cryptocurrencies operate differently from fiat currency; in centralized banking systems, the currency is released at a rate matching the growth in goods; this system is intended to maintain price stability. A decentralized system, like bitcoin, sets the release rate ahead of time and according to an algorithm.

What is the purpose of bitcoin?

Bitcoin was created as a way for people to send money over the internet. The digital currency was intended to provide an alternative payment system that would operate free of central control but otherwise be used just like traditional currencies.

Are bitcoins safe?

The cryptography behind bitcoin is based on the SHA-256 algorithm designed by the US National Security Agency. Cracking this is, for all intents and purposes, impossible as there are more possible private keys that would have to be tested (2256) than there are atoms in the universe (estimated to be somewhere between 1078 to 1082).

There have been several high profile cases of bitcoin exchanges being hacked and funds being stolen, but these services invariably stored the digital currency on behalf of customers. What was hacked in these cases was the website and not the bitcoin network.

In theory if an attacker could control more than half of all the bitcoin nodes in existence then they could create a consensus that they owned all bitcoin, and embed that into the blockchain. But as the number of nodes grows this becomes less practical.

A realistic problem is that bitcoin operates without any central authority. Because of this, anyone making an error with a transaction on their wallet has no recourse. If you accidentally send bitcoins to the wrong person or lose your password there is nobody to turn to.

Of course, the eventual arrival of practical quantum computing could break it all. Much cryptography relies on mathematical calculations that are extremely hard for current computers to do, but quantum computers work very differently and may be able to execute them in a fraction of a second.

And..

Why do Bitcoins have value?

Bitcoin offers an efficient means of transferring money over the Internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank-controlled fiat money.1 There has been a great deal of talk about how to price Bitcoin, and we set out here to explore what the cryptocurrency’s price might look like in the event it achieves further widespread adoption. First, however, it is useful to back up a step. Bitcoin and other digital currencies have been touted as alternatives to fiat money.

Scarcity, Divisibility, Utility, and Transferability

Aside from the question of whether it is a store of value, a successful currency must also meet qualifications related to scarcity, divisibility, utility, transportability, durability, and counterfeitability. Let’s look at these qualities one at a time.

1. Scarcity

The key to the maintenance of a currency’s value is its supply. A money supply that is too large could cause prices of goods to spike, resulting in economic collapse. A money supply that is too small can also cause economic problems. Monetarism is the macroeconomic concept that aims to address the role of the money supply in the health and growth (or lack thereof) of an economy.

2. Divisibility

Successful currencies are divisible into smaller incremental units. In order for a single currency system to function as a medium of exchange across all types of goods and values within an economy, it must have the flexibility associated with this divisibility. The currency must be sufficiently divisible so as to accurately reflect the value of every good or service available throughout the economy.

3. Utility

A currency must have utility in order to be effective. Individuals must be able to reliably trade units of the currency for goods and services. This is a primary reason why currencies developed in the first place: so that participants in a market could avoid having to barter directly for goods. Utility also requires that currencies can easily move from one location to another. Burdensome precious metals and commodities don’t easily meet this stipulation.

4. Transportability

Currencies must be easily transferred between participants in an economy in order to be useful. In fiat currency terms, this means that units of currency must be transferable within a particular country’s economy as well as between nations via exchange.

5. Durability

To be effective, a currency must be at least reasonably durable. Coins or notes made out of materials that can easily be mutilated, damaged, or destroyed, or which degrade over time to the point of being unusable, are not sufficient.

6. Counterfeitability

Just as a currency must be durable, it must also be difficult to counterfeit in order to remain effective. If not, malicious parties could easily disrupt the currency system by flooding it with fake bills, thereby negatively impacting the currency’s value.

How can I get Bitcoins?

There are two ways if you want to own bitcoin, buying it or mining bitcoin.

If you want to know how to buying bitcoin, read my article “How to buying bitcoin?”, and if you want to know how to mining bitcoin read my article “How to mining bitcoin?”.

Thank you! :)