Just in the last few years, cryptocurrencies and bitcoin have increased rapidly, attracting many investors. Forbes magazine has analyzed why bitcoin is valuable.
This year, billionaire Warren Buffett, in an interview with CNBC magazine, made a controversial statement earlier this year that cryptocurrencies and bitcoin are inherently worthless. Because the investor cannot do anything except hand it over, sell it to someone else.
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According to Forbes, it cannot be denied that this theory accurately reflects the nature of bitcoin because stocks, bonds, and real estate all can generate cash flows, which can be priced based on themselves. Meanwhile, bitcoin doesn’t create anything.
So, the question now is, why do we feel bitcoins have value even their value is constantly changing?
By the late 1800s, crude oil was primarily a nuisance. Pioneers in the western United States who dig wells for water will sometimes find oil and feel frustrated. The problem was that at the time, oil had no known benefit. It can be used to make asphalt and as a medicine, but humanity has yet to recognize its correctness and value.
Things started to change when George Bissell made a breakthrough in the 1850s: He wondered if it could be treated and used as a lightener and a lubricant for machinery or not.
That’s how the oil industry came to be: A lonely scientist has found that an ugly, sticky, dirty liquid can be used to create light.
However, for the first few years, oil demand remained low because oil had many problems. One is that it is stagnant because crude oil has a high natural sulfur content. However, significant advances in the field of chemistry have resulted in desulfurization and incrementally enhancing the value of oil.
The story doesn’t end with kerosene lamps. The turning point of the century has seen engineers experimenting with internal combustion engines. As the car grew, the oil demand also skyrocketed. By the end of the 1920s, 85% of oil production was used as fuel.
Bitcoin today is believed to be similar to oil in the past. Individuals use bitcoin as a way to store their savings outside of the fiat currency system.
Bitcoin is perceived as digital gold, allowing money transfer, cross-border transactions, and quick settlement of valuable exchanges. In some countries, bitcoin provides an “outlet” for citizens concerned about financial turmoil.
Some realities make bitcoin valuable and continuously attract investors. It is clear that bitcoin is not quite the same as oil as its supply is pre-determined and controlled: There will be no more than 21 million bitcoins on the market.
Demand can increase hundreds of times while the number of bitcoins is fixed. Besides, users can keep bitcoin for many years at a low cost and patiently wait to sell when the market demand increases.
According to Forbes, buying bitcoin today is like buying oil in 1850 after seeing its initial utility with the big difference that new kind of oil cannot be created, even as demand increase and new use cases emerge.
But unlike oil, with bitcoin, there’s no rush. As a digital asset, you can store bitcoins cheaply for years and treat them as a long-term investment or even savings.
Thinking, analyzing the logic behind the value of bitcoin for today’s investors, is buying a scarce asset before demand grows in line with its actual value.
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