September 25, 2023

Why Bitcoin Has Value: A Little About Networking

We are all familiar with the internal understanding of the value of something that gradually emerged in our process. cognition of the surrounding reality. A gold bar has value, a glass of mineral water also has it, though not so much. When we are faced with something new, the assessment of intrinsic value usually does not cause us problems, but with Bitcoin everything is different. Bitcoin is not easy to understand, and for many beginner bitcoiners, the question of assessing its true value is very acute. So why is Bitcoin so valuable?

First we need to figure out why at alldoes anything have value? Fans of post-apocalyptic fiction often point out that, after all, the only things of value are those that support and protect life. Perhaps they are right in some ways, but with the growth of civilized societies, things have become somewhat more complicated, because the things that support and protect these societies are also of great importance. In this context, all money, including Bitcoin, is gaining value. Since our societies are heavily dependent on trade and commerce, everything that promotes the exchange of goods and services has some degree of value.

From barter to money

Imagine, for example, a trading platform beforesince the advent of money, where the barter exchange system prevailed. Perhaps you are a fisherman who came to the market with his catch, and you want to return home with some chicken eggs. Unfortunately for you, the chicken farmer currently does not need fish, and therefore you will have to make a series of exchanges to get what the egg seller needs. You may even lose a certain percentage of the value of your fish during these exchanges, in addition, you should clearly know the exchange rates for each of them. The confusion and only.

That's what money is needed for this. Having come to an agreement that to use, say, silver coins as an intermediate product, we reduce the number of necessary exchanges to a maximum of two. In addition, now for each product there is only one exchange rate - this is its value in silver coins.

Of course, in reality, everything is somewhat more complicated: not every product is convenient to use as money. For example, take your fish: it will deteriorate quite quickly, it is difficult to divide it into equivalent parts, in addition, depending on the exchange rate, you may have to carry an absurd amount of fish with you to make all the necessary purchases.

Silver coins, on the other hand, also havetheir internal problems if you trade them in very large or very small quantities. In this, Bitcoin undoubtedly surpasses them, and therefore it is much more valuable. It’s just the best money.

Evolution to Bitcoin

It's been quite a while sincethe first “hard” funds were developed, and today most of the transactions are carried out primarily in the digital form of money tied to paper currency. We imagine a bank with vaults full of heaps of banknotes, but in reality in our time most money exists only in digital form in the form of numbers in databases. There is nothing wrong with this type of system. It works great in an era where there is no need for a physical presence during the transaction. The problem is that the system is becoming obsolete, and it is widely prone to abuses by people, their incompetence and greed.

Every IT professional knows that from time to timeyou need to take a decisive step by throwing the old system in the trash and building a new one from scratch. The old systems, of which the current monetary system is, have been revised many times, but they no longer function as efficiently as they should.

Previously, we were developing monetary systems,based on gold and silver, by introducing paper banknotes. We fixed all new problems by removing precious metals from the security of these banknotes. Then additional steps were taken to improve, such as the introduction of cashless transfers, credit and debit cards, direct bank lending and online bill payments. But all these are just minor refinements of the old monetary system that has already outlived its century. Patching holes - that's what we have been doing all this time.

But what would you do if you had a chancebuild everything from scratch? What if you could make a system based on a purely digital form of money and based on modern technology to meet modern needs? What if we simply do not need all these old dusty systems and the people who support them, who make absurd profits on this? And here Bitcoin appears.

No repairs. Only a complete replacement!

Bitcoin is not another patch patchholes of the old monetary system. This is not some new bank or payment system offering new ways to transfer old dollars. Bitcoin is a simple, elegant and modern replacement for the whole concept of money. And it has value for the same reason that paper money in your wallet has it: it simplifies the exchange of goods and services, and this is no longer happening in relation to what we had in the ancient atmosphere of the barter market, but in the modern situation, where the network Internet interactions play a critical role.

“And that’s all it is useful for? What is its true value? ” - I hear questions of perplexed people. The answer to them consists of two words: network effect. Network effect is a term thatexplains that networking products and services tend to be increasingly valuable if more people are using them. A good example is the telephone: in the early days of his invention, only a small handful of people had access to it, and therefore its value was meager. Today, almost everyone has it, and its value and usefulness is undoubtedly very high. Thus, the value of Bitcoin directly depends on the number of users and the frequency with which they use it.

Of course, the value resulting from the network effectBitcoin has its own unique features and challenges. While the network is relatively small, the entry and exit of each new group of participants can cause serious price fluctuations, resulting in huge profits for earlier participants. Unfortunately, looking at Bitcoin superficially, all this is very suspicious: it looks too good to be true. Hence the widespread emergence of opinions that Bitcoin is a pyramid or Ponzi scheme.

Ponzi scheme and pyramids are different types.fraud, but they have one thing in common: those who entered the scheme first get profit, and those who last lose their money. In all the pyramids, the "first-born" earn precisely due to the ever new participants. Earnings are always stunningly large and growing exponentially.

For the reason that Bitcoin's value is so dramaticsoared upwards since its debut in 2011, it seems that it falls under the definition of a pyramid. But if this is so, then in this case, and in general, all new technologies fall under it. In fact, in the case of Bitcoin, the situation is quite unique: we have the opportunity to invest in this technology and make a profit along with the growth of its adoption by the masses. Imagine that you would have the opportunity to invest in the concept of email in 1965, when some smart hacker from the Massachusetts University of Technology found a way to send messages in primitive multi-user computer systems. Then it seemed almost useless, but today, the owner of a tiny percentage of the rights to the concept of email would be fabulously rich.

Technology is always well known.their adoption curve, which includes a period of exponential growth. And Bitcoin is no exception. The fundamental difference is that Ponzi schemes and pyramids create value only for the oldest investors by simply redistributing money from new participants. No economic component. Just an ordinary theft.

Bitcoin creates value as for earlierinvestors, and for new ones, providing more and more opportunities to use the currency, the amount of which, in addition, is limited. This is not a hoax or theft, but simply the good old law of supply and demand in action, or in other words, the ancient economic principle, in the service of the latest monetary system.

: ybitcoin