No asset backs the value of Bitcoin. A backed currency guarantees that people can exchange cash for a predetermined amount of another investment. Another money supports a coin, which is known as a pegged currency. Also, by backing a coin, you guarantee it will always be worth at least as much as people can trade eventually. On the other hand, supported currencies can quickly lose their credibility if the public loses faith in the ability of the government to maintain the fixed exchange rate. Start your trading career at bitcoin-billionaire.com.
The main reason why currencies have a backing is to maintain their value. On the contrary, no asset supports this virtual asset as it is highly decentralized. No person or government can make the promise of ensuring people can exchange this digital asset for a predetermined amount of another investment.
However, this virtual currency lacking something to back it up does not mean it does not have value. Also, no asset backs fiat currency, but it draws its stability from the control of the Central Bank. Here is what makes this electronic currency valuable despite not having an asset that backs it up.
This virtual currency is valuable due to its scarcity, as only a 21million Bitcoin will ever exist. Also, not only is this virtual asset scarce, but it also goes through a halving after every four years. Halving means miners’ rewards are divided into two, making them work twice hard to earn one Bitcoin.
Because of the limited supply of this virtual currency, demand increases as everyone wants a share of this great innovation. Eventually, the value of this virtual currency increases. This virtual currency is a perfect hedge against inflation and a great store of value despite being volatile. This digital currency has experienced an upward trend for the thirteen years it has existed.
Fiat currency is not as transparent as this digital currency. For instance, no one knows how the government prints conventional money. On the other hand, this virtual asset has an underlying technology known as the blockchain. This blockchain technology is a public distributed ledger that records and verifies transactions. Moreover, blockchain technology ensures that transactions are more transparent as everyone can access them. However, you cannot alter or interfere with the blockchain as you will need to have the support of 51% of the Bitcoin network.
When using this digital currency, you do not trust any person, bank, or government, as this digital asset is fully transparent.
Lack of a Central Regulatory Body
This virtual currency is completely decentralized. Computers across the globe run this virtual currency’s core code and database. The same principle, however, runs on all sorts of different computers. So, if anyone attempts to hijack or manipulate the Bitcoin network, all the computers worldwide will verify and reject the change.
Additionally, Bitcoin enables peer-to-peer transactions meaning that transactions do not require the approval of a third party. Therefore, the absence of intermediaries makes Bitcoin transactions fast and less costly.
Ease of Conducting Cross-Border Transactions
Sending remittances using this digital currency is faster and easier than using traditional currencies. Sending fiat currency across the globe requires one to wait for days and request the bank’s permission to complete the transaction. However, this virtual asset is permissionless, meaning you don’t need an intermediary to conduct cross-border transactions.
Bitcoin is a digital currency entirely online and has no physical presence. Therefore, you can carry your Bitcoins on a hard drive or even a piece of paper. Also, sending this digital currency is easy if you can access an internet connection and own a smartphone.
The Bottom Line
This virtual currency has no asset that backs its value, as illustrated above. However, a few factors contribute to Bitcoin’s value. That’s why many people and businesses want to own it.