The value of Bitcoin is a perceived respect for its benefits and usefulness. The term value, as used here, should not be confused with price, which is the monetary cost of a bitcoin. The utility and the consequent value of Bitcoin is the result of many aspects of its innovation, its network and its characteristics. This guide analyzes the most important factors that lead its users to consider Bitcoin as valuable.
For the general field of science, the Bitcoin innovation is valuable for having solved the problem of the two generals (or the problem of the Byzantine generals). Satoshi Nakamoto’s intelligent solution to the double digital spending dilemma is achieved through a self-organized and time-based consensus register. The blockchain, a shared public ledger, is maintained by the peer-to-peer nodes that populate the Bitcoin network.
Because Bitcoin is decentralized through a distributed point-to-point network, there is no central server on which the Bitcoin protocol depends for its existence. Like BitTorrent, Bitcoin is, therefore, resistant to censorship, it can not be closed. This aspect of Bitcoin is critical, since it means that the continuous use of Bitcoin is not subject to the approval, opinion or action of any external authority. Being an alternative resistant to censorship against the official currency and payment systems, Bitcoin is an irreversible disruptive technology.
The innovations of Satoshi Nakamoto in the field of computer science are significant milestones. In addition, a social implication of the way in which Bitcoin innovates the payments and the transactions is that it eliminates the Trust. A distributed ledger and a decentralized network means that you do not need to trust any entity for the Bitcoin protocol to work. Each Bitcoin user owns and controls their own money directly, and is solely responsible for its security and use. You should not rely implicitly on any third party, such as a bank or a centralized issuer, to maintain, disburse or hold one’s bitcoin holdings. This trust-minus Bitcoin dimension eliminates the risks associated with having to rely on external authorities; in fact, the network effect of Bitcoin’s decentralization will, over time, eliminate centralized authorities everywhere.
Although a bitcoin can be copied many times, it can only be spent once. This design feature can be verified by making a copy of an existing Bitcoin wallet to another computer. The same bitcoins will exist in two physical locations, but only the first expense transaction will be successful. The network will recognize a second attempt to spend the same bitcoins as a double expense and reject it. This is the fundamental innovation that distinguishes Bitcoin from all previous attempts to create digital currency.
Bitcoin design value
With the solution for double spending as a basis, the explicit design features of Bitcoin offer users additional value:
1. Payment method (currency)
2. Wealth storage (secure storage and transmission)
3. Ledger of decentralized public transactions (blockchain)
4. Contract mechanism (mostly not used despite its great potential)
In everyday use, the first three Bitcoin applications are ubiquitous and often overlap.
Bitcoin uses public-private key pairs to protect transactions. A Bitcoin address is a public key generated from a private key held in a user’s wallet. A Bitcoin transaction destined to an address generated by a wallet is signed with the public key of that address, and can only be “unlocked” (or spend) with the corresponding private key. Therefore, Bitcoin transactions are insured against theft. The underlying mechanism that avoids double spending ensures Bitcoin against counterfeiting.
Value in development
Bitcoin is available as free and open source software under the MIT license. In addition, the protocol is also developed through the open source project model that encourages the contribution and collaboration of the community.
The collaborative development of publicly available source code is considered preferable to the closed source code developed by a content team. Errors and security solutions are identified and solved quickly, and throughout the day, while the principle of strength in the number and diversity of skills allows for greater productivity.
The Bitcoin Core developers are mostly unpaid volunteers who maintain and manage the Bitcoin source code. If their work were less critical and exciting, it could be described as an “ungrateful task”, however, they represent some of the most hardworking developers in the field. Coredevs provide thousands of hours of code writing and rigorous compliance with Satoshi’s design specifications to translate the vision of Bitcoin into reality.
The Bitcoin network is a decentralized network of equals that, ideally, is distributed and diverse. The more widely the nodes are distributed point by point, the more decentralized the network will be. The more diverse (not similar) are the nodes, the wider the representation on the network and, therefore, is more flexible and secure. The Bitcoin protocol is designed to seek consensus among the nodes, and greater decentralization means a healthier and more robust network. All these factors contribute to a more valuable block chain.
Miners are valuable
Bitcoin Miners are rewarded with bitcoins for processing block transactions. The mined blocks are usually attached to the chain of blocks and become part of the public ledger. By processing the transactions, building the blockchain and hosting the point-to-point nodes that maintain the consensus of the network, the miners represent the backbone of the distributed Bitcoin network. For its task of maintaining the functional network at all times and maintaining the precious chain of blocks, the miners (in close relationship with the developers) are the
Bitcoin protocol users that add the highest value.
Value transmission and storage
The world’s reserve currency, along with most other national currencies, can be exchanged for bitcoins and stored or transmitted through the Bitcoin network. It seems that as the amount of money increases, the benefits of using Bitcoin storage / transmission increase.
The stored bitcoins can be protected in different ways, including passwords, biometric readers and multiple signature transactions. Although the theft of, say, a password or a human error can result in the loss of stored bitcoins, the risks are much lower than in the case of physical assets such as paper money or gold bullion. The transmission of bitcoins through the payment network is cheaper and faster than the transfer of an equivalent amount through traditional channels, and is less cumbersome and safer than transporting an equivalent amount of ingots.
Contract value and application
The Bitcoin contracts are described by Satoshi Nakamoto, although this aspect of the protocol has found few applications to date. The contracts extend the ease of multiple Bitcoin signatures by allowing two or more parties to participate in agreements that are fulfilled by events that are external to the Bitcoin network. Examples include options contracts, Wills and even simple binary bets as the result of the Brazilian Women’s Volleyball game. In the future, this Bitcoin facility will be better understood, used more frequently and will add more value to the protocol.
The distributed blockchain is designed to accommodate alternative chains, thus opening the door to applications that use and improve the Bitcoin protocol. These distributed applications will add value by making Bitcoin more useful.
We have seen how the value of Bitcoin can not be reduced to a single element or characteristic. Many aspects of cryptocurrency contribute to its usefulness and offer benefits that surpass traditional paper money and its current systems. As a decentralized network with a consensus-based ledger, the Bitcoin blockchain has features that are innovative and foster innovation. The Bitcoin Open Source Software model facilitates additions and improvements.
The value of Bitcoin’s central function of being a payment, storage and accounting network is evident from the fact that users are willing to buy bitcoins, carry out transactions in bitcoins and use their ledger over the network. At the time of writing, an average of 62,000 Bitcoin transactions are made daily with an average volume of $ 50,000 per day.