Why Do People Buy Bitcoin?
How Do Cryptocurrencies Like Bitcoin have value?
Cryptocurrencies like Bitcoin are valuable because we believe they have value. The value of anything comes down to a matter of perception, just like how a cold bottle of water is much more valuable to someone who’s thirsty over someone who’s not.
Bitcoin and other cryptocurrencies are collectively valued by tens of millions worldwide – currently sitting at a market cap of $424 billion NZD.
Since value comes down to a matter of perception, in this article we’ll primarily cover what backs Bitcoin’s price in the first place, and compare this backing to what backs a currency like the NZD.
As showcased in our basics guide on cryptocurrency, it is clear that cryptocurrency has a plethora of ingenious attributes that give it value and utility in one way or another. One of them being its ability to be used as a borderless decentralised universal censorship-resistant virtual currency.
Why Do People Buy Bitcoin in NZ?
Bitcoin’s market price as a non-physical asset comes from the same thing that determines the price of any other commodity, the laws of supply and demand. Nature doesn’t slap a price tag on anything, the free market does!
The price of Bitcoin is simply determined by what the market is willing to pay for it. The same goes for a floated currency like the NZD, where the price is determined by the means of supply and demand, as well as how it shapes up against a basket of other currencies.
The laws of supply and demand are universal for determining the price of a product or service, but there are several other factors that indicate that Bitcoin may have a stronger backing than a government-issued currency like the New Zealand dollar.
Printing and destroying money fulfils purposes like keeping a currency stable, or to replenish batches of old or damaged notes.
Although printing and destroying money is required for certain reasons at certain times, there are many examples in modern-day that show that a government or private entity’s executive control over the supply of currency can lead to very bad results. Recent examples include the failing currencies of Argentina, Venezuela, and Zimbabwe.
This is a key difference between fiat money like the New Zealand dollar and Bitcoin, as the total amount of NZD can be edited whereas the total amount of Bitcoin is locked.
Hence why the price of Bitcoin is so volatile – there’s a finite amount of it in circulation so market confidence can severely impact the demand for the limited amount of Bitcoin that exist.
Supply is not the only factor that can be used to manipulate a currency’s price, and Bitcoin is a prime example of how this can happen. As investors or institutions with deep pockets buy and sell large amounts of Bitcoin, the price of BTC can drastically fluctuate.
Due to these deep-pocketed investors (whales) and/or general market trends, the price of Bitcoin can be extremely volatile, a desirable attribute to some but a deal breaker to those wanting to use it as a stable, full-time currency.
Due to this high level of volatility, a large portion of global cryptocurrency adopters are accumulating these digital currencies as digital assets, or as ‘speculative’ investments, -rather than as cash to be used on the day-to-day, for now.
That isn’t to say that cryptocurrency isn’t being used and accepted as a payment method in franchises around the world, you can see the map for yourself here.
A currency needs to be stable to be fully functional, or else you could be selling a product that cost $100 to build yesterday for only $80 today.
Even though Bitcoin and other cryptos face immense price fluctuations, it’s important to consider that as more people enter the market, the more decentralised it will become.
Bitcoin would be increasingly distributed between its users as the cryptocurrency market evolves – reducing the amount of influence deep-pocketed individuals have over Bitcoin’s price.
For reasons like this and more, cryptocurrencies like Bitcoin are seen as solid investment vessels for the long term future.
Another interesting comparison between crypto and fiat is how it’s stored. Cryptocurrency is stored in digital ‘wallets‘ where only those who have the keys to it can access it.
When putting your money in a traditional bank account, your money is stored in one big account that your bank owns. The account balance on your phone or ATM resembles debt that your bank owes you, rather than actual funds sitting in their own physical or digital account.
Money in your bank account is best represented as an ‘IOU’, whereas Bitcoin and cryptocurrency wallet balances represent real ownership of digital assets sitting in an account that you are in sole control of.
New Zealand Dollar vs. Bitcoin
Having Bitcoin in your own Bitcoin wallet is like carrying an ingot of gold around in your virtual pocket at all times. The price of the gold may vary, but you know you will still have the same weight of gold on you at the end of the day. Nobody can stop you from using or storing this digital gold either.
Owning government-issued fiat currency like the NZD is like having an IOU for a gold ingot that is in your bank’s pocket. Meanwhile, gold bars are slowly being added to the total gold supply, so tomorrow the gold bar in your pocket might only be worth the price of two gold bars now – devaluing your gold by half.
This is called the practice of inflation, and it is the reason that if you kept $100 New Zealand dollars for the last 100 years, it would only be worth $2 dollars now.
In conclusion, cryptocurrencies like Bitcoin hold value not only as a universal decentralised currency but also as a store of value.
Due to the lack of executive control from one individual or government, cryptocurrency has been called ‘the catalyst for the separation of money and state’. We will only find out in time if this is true.
The value of cryptocurrency goes even further if you consider it’s potential to provide autonomous banking to the masses, and its ability to be integrated into other systems like Smart Contracts. (Legal computer backed contracts where the need for a middleman like a lawyer is removed) And its ability to be used in autonomous Machine to Machine transactions.
It is only fair to say that cryptocurrency is not perfect. For a currency to operate properly it is required to hold stability, and since crypto’s like Bitcoin have a finite supply, there is no way that any individual party can tame its volatility. This is not a surprise though as less than 1% of the world owns any. You can learn more about how many people are already using cryptocurrency here.
How you can get involved in the action
Hopefully, after reading this article (and our first article about the basics), you are starting to get a grasp on the concept of virtual currencies. The best way to wrap your head around it, like anything, is to mess around with it yourself.
To become an early adopter, sign up with Easy Crypto here, and in a few minutes you will have created an account and a crypto wallet, and purchased some cryptocurrency for your own, all at the best crypto prices in New Zealand.