What is the underlying value of Bitcoin?
Ethan An intrinsic value of a commodity is a value that a product possesses in itself. It does not require an additional source to provide it with a value. Eg: Sweetness is an intrinsic value of sugar. Every commodity earns its value if there is a price that people would pay to obtain it. Today, we accept any fiat currency in exchange for goods or services as we understand that in turn, the fiat currency can be traded again to obtain other goods or services.
Well, certain currencies that are backed by precious metals like gold and silver have an intrinsic value. But, today most of the global currencies are Fiat Currencies. A commodity to be valuable hence needs to be exchangeable for a similar value. The commodity also must be able to hold or store this value so as to be traded in the future. Add to that, if the commodity in place is limited in supply then its value increases over time with demand.
To exchange Bitcoin, visit: bitcoin to euro
What is a Fiat Currency?
Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government. It is important to understand here that this demand and supply is decided by the participants of the network who are bringing a fiat currency into use. For example, within a network, I trade a $100 note for a mobile phone, I am essentially exchanging value worth $100 for the phone. The store-keeper, takes the $100 note and buys his meal with the same or invests it to create more value. Fiat currency or money establishes the exchange of value with the help of the government’s backing
Here is the Value!
Similar to Fiat currency, Bitcoin (or most of the cryptocurrencies) is also not backed by any gold or silver hence does not have any intrinsic value. The value of any currency comes from the backing of the state and the trust that people have over the government. Hence, for any money to be established as an exchange of value within a network, it is important for the network to trust it regardless of who (or what) is backing it.