Bitcoin is not only an evolution of something from the past — it has much from the future

This is a very popular question.

I usually answer it with a counter-question — what does have real value? Think about it, and you’ll see that very few things really matter.

Food, a roof over our heads, clothes — they are real, and they have value, simply because we need them for life, and they cannot be replaced.

I mean, you can move from one house to another, of course, but we are talking about a shelter as a phenomenon.

All the diamonds in the world become useless when you’ve got nothing to eat, or live in the open. They cannot warm you, protect you from rain and snow, or feed you.

The same applies to all so-called valuables, including money. We can exchange them for necessary things only because ages ago people agreed that precious metals, gems, and later banknotes can be accepted as an equivalent of our labour, and as a payment for things or services.

As long as this agreement is real, the system works fine, and you can buy anything with dollars in your wallet.
Imagine the situation — you are on an island inhabited by people, who have never heard of America, banks, or money. Try to offer them a case full of bucks, and you won’t get a piece of bread for it.

A jaded story, I know.

Yet, it can help you understand why I believe that Bitcoin has value in our world. It has value in the USA and in all other countries where it is accepted and not forbidden by law.

I’d like to talk about this issue in detail. Hopefully, this posting will answer some of your questions when I finish it.

We’ll try to find out why the BTC price changes, what influences it, and why cryptos have a price in general.

Eternal controversy: intrinsic value

This term, intrinsic value, is a favourite among those who oppose to cryptocurrencies.

They do not find it in BTC and altcoins, but aren’t they the same people who claim paper money does not have it, too?

Surprisingly, I agree with both statements. The word “intrinsic” can be understood differently, and the explanation given by financiers is rather hard to understand.

I prefer the term “fundamental,” or “true,” meaning that this is the value of an asset or commodity, which is independent of its market price, but instead refers to:

its ability to generate income;
its potential and practical utility;
how much it takes to produce it.

Nevertheless, there is no common understanding of what “intrinsic” is.

Some say that fundamental value is inherent in things that support life in humans — food, housing, clothes, vehicles, weapons, etc.

However, this model works for primitive societies, while in the modern world everything is a bit more complicated.

In this day and age, we cannot rely on tangible things exclusively. Human civilization exists thanks to constant development and progress, and we need something that can sustain our quality of life, and achievements in economics and civil society building.

Value of monies

The concept of money has become a cornerstone of the world as we know it.

We would not have any chances to build the modern system of economic relations, intercontinental trade, and capital flows without currencies. And still, they all can be accepted only as long as they are backed by governments and banks.

What does this support from political and financial authorities mean to us, ordinary people? We simply have to believe them that a piece of metal, or paper, or even some numbers on the screen, are worth something.

But is this value really intrinsic? I do not think so.

Take dollars for example, one Zimbabwean, and another — USD. Both currencies were not gold-backed, but both were supported by their states and national banks.

However, the former devalued significantly, from 0.67 per one buck to hundreds of thousands.

Why did it happen? The reason is that one country, the USA, has a powerful economy, and its currency has value. Zimbabwe did not manage to build such a strong economy, and its money disappeared completely.

Can it happen to USD? Yes, if other nations lose faith in the US power, and start selling off the American currency.

Now take Bitcoin. It is not backed by any precious metal, neither is it supported by national economies, armies, politicians, etc. It costs a lot when many people want to buy it and believe that one bitcoin can be exchanged for more than US$19,000, and it dips when the same people lose this faith.

Doesn’t it look just like US money? This is why I think that Bitcoin, as well as other currencies, and even gold and diamonds, has no intrinsic value, as it is understood by anti-Bitcoiners.

But it does not mean that it is worthless. Quite the contrary.

Bitcoin is a replacement for the old system

So, what do we have? Everything is valuable as long as it can be accepted as a medium of exchange or means of payment for real things.

Gold, for example, costs so much because people once decided to give out the outcome of their work in exchange for golden coins.

The same applies to other currencies, too. Let’s call it a collective agreement. Without this agreement, anything beyond really necessary things would not matter.

Let’s see how and why we’ve invented currencies, and why cryptos are the natural progression of dollars and euros.

Why we need money

It all started when people exchanged goods and services directly for products and services, with no medium in between.

Then, the value of things was calculated easily — it directly depended on the amount of time and work spent to produce them.

For instance, if you were a poultry farmer, you’d need, say, a hundred chickens to exchange them for a cow, or one half — for a small fish. This system, though it was very ineffective, existed for thousands of years.

Its inefficiency stemmed from two factors:

it was impossible to estimate the conversion rate of all products and services with respect to all other products and services;
it was a huge problem to find a person who has something you need and needs something you have.

Can you imagine, you go to the shoemaker with a chicken or eggs, but he needs ham, so you have to go to a piggery with a hope that people there will take your goods in exchange of theirs.

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No guarantees, though, that they’d want to do so, maybe you’ll need to go to another place, and so on and so forth.

Moreover, you know that you need one chicken to buy a pair of shoes, but who can tell you what will be the price of pork meat or other things? This chaos pushed human civilization to develop a medium of exchange.

Evolution of currencies

It was coinage that replaced bartering and kept hold for about four centuries. It had huge advantages over the previous system:

merchants did not have to make many transactions in order to buy and sell their products, they had to exchange goods for coins, and then coins for goods;
everything found its fixed price, measured in silver or gold;
a poultry farmer could find his buyer before his hens and eggs rot;
moreover, he had a chance to buy something small and cheap without needing to cut the chicken into pieces.

In technical terms, precious metal coins acquired the properties of money: they were durable, fungible, portable, divisible, acceptable, verifiable, and scarce.

However, they had their problems, too.

First of all, it was a big problem to transfer significant sums from one country to another, let alone intercontinental transactions.

I believe that was the main compelling motive for humankind to use paper money.

Originally, each banknote was backed by gold, or some other commodity, even by bread, but in the first half of the 20th century, most countries got rid of the golden standard, and now fiat currencies are supported only by the government’s decree.

Anyhow, the next task assigned to money by people was to let them make transactions without being physically present where the deal takes place.

So, why Bitcoin?

Paper money evolved into credit and debit cards very quickly, and with the development of the internet and digital technologies, the evolution was accelerating every day.

We’ve got electronic wallets, online bank accounts, payment systems, wire transfers, etc., to operate our dollars.

And yet, fiat currencies could not satisfy all the needs of a modern person. We needed something that was independent of politicians, could not be artificially inflated or devalued and was not prone to any kind of world crises.

We needed Bitcoin.

If you compare it with regular money or coins, you’ll see that this crypto has all the same characteristics:

as well as with gold and silver, it takes a lot of time and efforts to mine BTC;
it does not age;
it is recognized all over the world, and accepted by many companies, and it is the same bitcoins everywhere;
the supply of tokens is limited, so it is scarce;
you can divide it into fractions;
it’s even more portable than any fiat currency.

In addition, Bitcoin has some brand-new features, which were not peculiar to regular money.

You cannot counterfeit bitcoins. It is not limited by borders; it is international by its nature. It does not have a centre, or a person at the helm.

No one, including the most powerful governments on Earth, can issue more BTC than programmed in the core code, there is no chance for a man, or a group of men, to move its price up and down to benefit from these swings.

The market sentiment changes so frequently only due to its youth, and comparatively small total cap. Bitcoin charts obey only the trading laws, supply and demand.

Bitcoin is the money of the future

However, having said everything above, it is not the main thing that gives Bitcoin its value.

The main cryptocurrency is useful, and lots of people want to have it. This utility makes Bitcoin so precious and wanted by so many people. We use cryptos to pay for goods and services, to play the market, to invest money in them, etc.

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And, old monies cannot compete with the cryptography anymore; people lose trust in fiat currencies with each new economic collapse or geopolitical crisis. We are tired of borders and restrictions, tired of being unaware of who makes decisions and how.

Bitcoin is not only an evolution of something from the past — it has much from the future.

Those guys, who invented cryptocurrencies, gave us an entirely new idea of money, based on principles of transparency, decentralization, openness to all, and governance by everyone who uses it.

Unfortunately, the old ways do not want to recede easily. Politicians and financiers from the past try to ban digital assets and impose various restrictions, but I am sure they cannot succeed.

People need the brand new money, and Bitcoin is what we’ve been looking for. Its value will only grow with soaring demand, which is not going to lose steam.

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