Bitcoin, the original cryptocurrency, has mostly increased in value ever since it entered the financial scene. The current price of around £40,000 in a little over a decade attests to this trajectory.
Undoubtedly, it is the biggest cryptocurrency in the world. However, those who have been more than suspicious about Bitcoin’s rise argue that it’s only a matter of time before the value of this cryptocurrency returns to zero.
Given that some of the biggest corporate names have recently purchased a lot of Bitcoin, how realistic is that claim?
Where Does Bitcoin Come From?
One of the arguments Bitcoin non-believers use against its origins is questionable. If you can’t print new pound sterling or US dollar notes without getting into a world of legal trouble, how is that you can “materialise” bitcoins out of thin air?
Sure, we all understand it’s digital money, but it still has to come from somewhere. All the bitcoins available in the Bitcoin network come from a process called “mining.” Metaphorically, it evokes the action of “gold mining” or digging for value.
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The world itself is meant to describe a time-consuming and laborious process. Bitcoin mining requires specialised computer hardware, software, and plenty of electric energy. The miners are rewarded with new bitcoins for their services.
It’s also important to highlight that bitcoins are created at a fixed rate. As you can imagine, Bitcoin mining is a very competitive business, so the fixed rate is set by design.
Also, the number of bitcoins allowed into existence is 21 million. When this number is reached, the issuance of bitcoins will stop. That doesn’t mean Bitcoin will disappear, though, as users can make a profit via many small transaction fees.
Why Does Bitcoin Have Value?
It can be challenging to wrap one’s mind around the idea of Bitcoin having any real value. But if you view it as nothing more than another version of money, it becomes easier to understand.
Keep in mind that Bitcoin has all the characteristics of any other currency – durability, scarcity, divisibility, portability, and recognisability. Regardless of not having a physical form, Bitcoin is backed by mathematics, the same as other currencies.
However, the most substantial explanation of why Bitcoin has value is because people gave it value and continue to do so. This principle applies to everything that’s considered valuable or not. As long as people view Bitcoin as a legitimate form of payment, it will continue to have value.
Can the Price of Bitcoin Become Zero?
The shortest and most straightforward answer to this question is yes. Bitcoin can become worthless again. But so can any other currency, and in fact, Bitcoin is less likely to lose its value. A Yale University 2018 study has found that the odds of Bitcoin crashing to zero sit at around 0.4%.
Crashing Bitcoin value to nothing would be a monumental task, which at this point, is near-impossible. When we talk about national currencies that are no longer in use, such as the Zimbabwean dollar, this has typically come about due to hyperinflation and other politically based failures.
This is not something that could ever happen with Bitcoin, as cryptocurrency has no centralised authority. However, there’s always the potential for failures, even with Bitcoin.
There could be any number of technical issues or competing currencies that could, in theory, drive the value of Bitcoin significantly, if not completely.
This is also a good thing in many ways because no currency should ever be indestructible and above hard times. The short yet impressive history of Bitcoin, however, has shown that it’s a reliable investment.
Is Bitcoin Bubble Going to Burt?
If you have been paying attention to Bitcoin-related headlines, you’ve probably noticed that there’s a lot of talk about a pending Bitcoin bubble eruption. This fear stems from the notion that any meteoric rise of something constitutes a bubble that will burst once it over-inflates.
But this is a flawed way of thinking because the bubble is an artificially designed over-valuation. That doesn’t apply to Bitcoin as its entire existence is comprised of individual human-made actions.
While there are no guarantees that Bitcoin won’t fail in the near or far future, there is no reason to be fearful of it either. The fact that Elon Musk has decided to invest in Bitcoin says a lot about where its future is heading.
Bitcoin and Energy Consumption
Other questionable headlines about Bitcoin raise doubts about whether its value will revolve around the energy consumption issue. Currently, Bitcoin uses close to 1% of global electric energy expenditure.
This means that Bitcoin computers worldwide spend more than a country like Belgium does on electric energy annually. As the number of Bitcoin miners grows, some people are asking how environmentally sustainable mining will be in the long run. They cite this as one of the reasons for a potential drop in Bitcoin value.
While there are legitimate concerns pertaining to this energy consumption, it’s also about putting things in the right perspective.
For example, the world banking system uses ten times more energy per year. Plus, Bitcoin miners are encouraged to use low-cost power, which often remains unused.
Is It Too Late to Benefit From Bitcoin?
People interested in investing in Bitcoin or mining often wonder whether they’re too late to join the cryptocurrency trend.
The reason why that’s the case is that there is a prevalent idea that early adopters of Bitcoin unfairly benefit from it. Yes, some of them have large amounts of bitcoins because they saw it as an opportunity early and made the investment.
However, Bitcoin’s still in its infancy, and there’s no telling if those who invest now won’t see the benefits in the future.
Is Investing in Bitcoin a High Risk?
There is no yes or no answer to this question. The open-source, decentralised nature of Bitcoin ensures that there is no way to tell if the price will go down or up at any moment.
Thus far, it’s been on an impressive rise, and the bubble some fear is nowhere in sight. This doesn’t mean that investing in Bitcoin comes without risk or with guaranteed profit.
Bitcoin mining can be a challenging process, and there’s so much more to it than that. Keep in mind that, just like any other currency, Bitcoin can be devalued, regardless of how unlikely that is to happen.
Hitesh is a digital marketing strategist and entrepreneur with more than 15 years of experience in digital marketing, start-ups, branding, and customer acquisition strategies. Hitesh is the CEO and Founder of Reposition Group, which specialises in digital growth strategies for companies in the cryptocurrency market such as Bitamp.com.