Bitcoin (BTCUSD) is often referred to as digital currency and as an alternative to central bank-controlled fiat money. However, the latter is valuable because it is issued by a monetary authority and is widely used in an economy. Bitcoin’s network is decentralized, and the cryptocurrency is not used much in retail transactions.
One can argue that Bitcoin’s value is similar to that of precious metals. Both are limited in quantity and have select use cases. Precious metals like gold are used in industrial applications, while Bitcoin’s underlying technology, the blockchain, has some applications across the financial services industries. Bitcoin’s digital provenance means that it might even serve as a medium for retail transactions one day.
KEY TAKEAWAYS
- Currencies have value because they can function as a store of value and a unit of exchange. They also demonstrate six key attributes to enable their use in an economy.
- The definition of value in a currency has changed over centuries from physical attributes to the velocity of its use in an economy.
- Bitcoin demonstrates some attributes for a currency, but its main source of value lies in its restricted supply and increasing demand.
- If the price of one bitcoin were to reach $514,000, Bitcoin’s market capitalization would reach approximately 15% of the global currency market.