From its introduction in 2009, Bitcoin has enjoyed a meteoric rise in price from being valued for nothing in March 2009 to being valued for $1 in February 2011 to being valued $6,813.97 as of the time of writing this article. Bitcoins trajectory in prices has coincided with debates regarding the source of its value.
Many are even comparing bitcoin’s rise to the transition from gold to paper money as the process was marked by debates regarding paper money’s value and its sharp increase in price.
How did Bitcoin and other cryptocurrencies get their value?
Basically, Bitcoin derives its value just as how anything else does: because people want it.
Whilst fiat currencies we use like the US dollar or the Pound Sterling derive value from the governments that back them, currencies like gold or silver are intrinsically valuable. It stands to reason that fiat currencies are intrinsically valueless.
But just like fiat currencies, Bitcoin is accepted by many people although not as many people as those who accept fiat currencies. Currency is just a collective agreement. And being accepted by people is how bitcoin got its value just like how fiat currencies derive theirs. This functionality of being accepted by different people makes Bitcoin a ‘medium of exchange’.
When more people started to accept for Bitcoin, demand for it rose equally and with that it became valuable. So like any other currency, Bitcoin is following the basic rules of supply and demand.
By gaining the feature of being a medium of exchange, Bitcoin’s value is further being asserted by the fact that it is a store of value since it can be stored for future use.
In summation, Bitcoin is valuable because it satisfies at least 2 functions of money. Bitcoin also gains its unique value from the fact that regardless of its lack of government backing and wide acceptance, it has garnered an ecosystem in which many people are willing to trade and accept it.