How is the price of Bitcoin formed? Part 1

People who have never dealt with the topic of cryptocurrencies often ask questions about the reasons for the high cost of Bitcoin. No one can understand why mysterious digital coins that cannot even be touched often rise in value. After all, we are dealing only with computer arithmetic code that someone invented.

The uninformed citizens are especially interested in the fact that the growth trends in the value of digital money largely coincide with gold, but at the same time the coins are not attached to any physical units. At the same time, people are in confusion who criticize the current national fiduciary banknotes for the fact that the latter are not tied to the countrys gold and foreign exchange reserves. Thus, cryptocurrency is becoming a reason for active discussions for many.

Skeptics can sometimes be wrong, so you need to take a closer look at Bitcoin. Cryptocurrency is gradually becoming a full-fledged replacement for fiat, national money, despite the fact that it appeared only a few years ago. The start of a digital money career was an article by Satoshi Nakamoto, which was published only in 2008. At that time, the document clearly described the fact that cryptocurrency was intended for a small number of programmers, and initially it was not about using it among economists. Therefore, the creation of a new technology was not known to a wide range of people, and most of the people were confused.

Nonetheless, the initial confidentiality did not stop the technology from exploding. Two months after the message from the Bitcoin developer, the "genesis block" was released - an experimental series of digital coins that were developed by Satoshi Nakamoto. It was with them that the development of a distributed public registry began, the version of which was located in each of the network nodes.

Six years later, digital money is no longer fun for geeks, and you can get hundreds of dollars for one coin. During peak periods, the cost of one token reached $ 1,200, and recent months have proven that such an indicator is not at all the limit. At the moment, thousands of companies have recognized the value of cryptocurrency and are using it in both virtual and real environments. You can often hear that Bitcoin is being introduced in third world countries where the banking system is not developed or the economy is going through difficult times, but many developed countries already support the first cryptocurrency today. For example, the World Bank, the Federal Reserve, and many other well-known organizations have considered the possibility of using digital coins.

According to fans of the cryptocurrency, it will grow in value anyway, which is facilitated by a limited number of coins. Among the growth factors are also considered versatility and a lot of advantages over national currencies. The participants in the transaction can exchange Bitcoins without the participation of a third party. Initially, the commission was completely absent, but today it is minimal. You can calculate what the emissions will be in the system, so there wont be any unpredictable situations. Bitcoins move easily, they are divisible, multifunctional and inaccessible to counterfeiters, and therefore, at least, no worse than other money. The cryptocurrency has proven itself as a unique monetary system in which there are no problems with identification and intermediaries. In addition, it is not influenced by either the government or the Central Bank, and therefore with digital money the user becomes completely independent.

Example for national currencies

For people who are used to the existing financial system, the very idea of Bitcoins existence is a little incomprehensible. The curious have to study the history of the creation of cryptocurrency and track articles on the latest achievements of blockchain technology in order to understand how the network works and its prospects. After all, not everyone is able to realize how money is generated, in fact, out of thin air using computer code. Previously, no one could have imagined that the means of payment of the future would look like this.

The main problem of consumers lies in their expectations, since supporters of the ideas of Karl Marx simply cannot imagine the implementation of a different cycle in nature, different from the money-labor-money system. At the same time, there is a unique theory of Ludwig von Mises, which many experts only try to interpret, but no one wants to understand what the scientist wrote about.

Misess work was published in 1912 under the title The Theory of Money and Credit. The book was originally published in German, and then was translated into English and became the subject of discussion for many financiers. In addition to the standard description of characteristics, the author drew attention to the analysis of the real value and value of fiat currencies. So, he arranged on the shelves that the value of the banknote corresponds to the goods that can be purchased for it. And he called such an analyst "the regression theorem." Today you can be sure that the Bitcoin payment system is fully consistent with this theory.

Karl Menger, who at one time taught Mr. Mises, said that money appeared with the development of market relations, and at that time it had nothing to do with social and state agreements. The means of payment were not formed at one moment - they, like a sculpture, were created and sharpened by the first entrepreneurs who were tired of the method of exchange through barter. From that time on, people could not only buy goods for immediate consumption, but also accumulate some funds to use them in the future. Money has become the most popular commodity and has become the driving force behind the market economy.

Mr. Mises believed that the value of money was talked about even when it was considered a commodity for exchange. After all, this was the only way to determine what value this or that product has. By studying the theory of the cost of currency, it is possible to track the real price of money until they began to be appreciated by themselves, and then they only reflected the market value of the offered product. And if you gradually study the biography of fiduciary monetary units, you can get to the point where they have already ceased to be an important instrument for exchange, and have acquired their own price tag. 

Misess theory, in fact, only voiced the thoughts of many economists who simply looked on the surface, without delving into the essence of the financial system. The authors opinion was very logical, even if it carried only hypothetical information. After all, salt or sable furs could become money with the same effect, if they could not be used with benefit. And, theoretically, what was the likelihood of gold and silver becoming valuable materials if the characteristics of precious metals were different? In any case, at the time of the appearance of money, its value was closely related to public benefit, so Misess theorem tells us that by themselves, pieces of paper with portraits of presidents and famous public figures are worthless.

Useful characteristics of cryptocurrency

Bitcoin seems to be an exception to the theory of the German economist. Initially, it can only be used for exchange, and is not edible, of no interest, like jewelry or clothing. The use of cryptocurrency in real life is rather controversial, so it is only an electronic code that makes it easier and faster to barter. And at the same time, Bitcoin managed to become money that is used literally every second all over the world.

It would seem that we praised Misess theory, but the price of Bitcoin today in dollars is a blatant contradiction to this idea. Perhaps an economist who lived at the beginning of the 20th century simply could not foresee the progress of mankind, or maybe cryptocurrencies simply became an exception to the generally accepted rule? But what if digital money is just a trend with no utility and no credible foundation? You can endlessly discuss various theories, but Bitcoin today caused a stir in the financial market, as many were doubted about the viability of fiat currencies. In addition, we are talking about a means of payment that cannot even be touched or seen.

You can talk endlessly about the essence of cryptocurrency, but it is better to put aside doubts and understand the essence of Bitcoin. Moreover, today on the Internet there are many scientific and almost scientific works, which perfectly describe the advantages and disadvantages of digital money in comparison with national currencies. In any case, the first cryptocurrency is both digital money and a payment system. The quality of the work of the latter determines the value of Bitcoin, and therefore the constantly increasing price of the token is a vivid indicator of the popularity of the development of Satoshi Nakamoto.