Whether or not Bitcoin has an intrinsic value is a much-discussed question for which there are several possible answers and interpretations, depending entirely on who you ask. Critics argue that Bitcoin, the largest crypto currency by market capitalization, has no intrinsic value (fundamental, elementary, inherent) at all and see it as a highly speculative asset whose price depends only on how much the other party is willing to pay for it.
On the other hand, the proponents of Bitcoin argue that the creation of a Bitcoin also requires resources. For example, the mining activities to create coins require computing power, which in turn requires a large amount of expensive electricity and hardware. They also argue that Bitcoin is gaining worldwide acceptance and that the increasing number of users of crypto-assets is also adding to the value of Bitcoin.
Inherent value of a currency
Generally speaking, a currency normally has no intrinsic or inherent value. The production of the most common form of currency used today, FIAT money / cash, costs very little. Its value comes from the fact that governments accept it to pay taxes and call it “legal tender for all public and private debts”. In other words, the value of currencies is only derived from the fact that the general public accepts them as a means of payment, not that they have intrinsic value or can be otherwise useful.
Production of Bitcoins
The production of Bitcoins is limited and is determined exclusively by a cryptographic hashing algorithm. Miners provide computing power to the network to validate transactions and protect it from malicious activities such as double spending and transaction reversal. For this they are paid with Bitcoins after finding a valid block. The difficulty of finding a block depends on the processing power available to the network and is automatically adjusted. If a large amount of processing power is available to the network at any one time, the code adjusts the Difficulty to make finding new Bitcoins more difficult. Conversely, it logically works in exactly the same way, so that when the processing power of the miners is low, the difficulty is reduced, making it easier to find new blocks.
In the beginning, a few computers were enough to secure the Bitcoin network, so the creation of new coins was fast and large. Since then, however, a lot has happened and the number of computers and mining devices participating in the network that provide their computing power has increased dramatically, which is known to have an impact on the difficulty of finding a block. Nowadays, it is almost exclusively left to professional miners to find new blocks and receive the block reward. The Bitcoin protocol stipulates that the miners’ reward for finding a valid block (block reward) is halved every 210,000 blocks (approx. 4 years). In the year of Bitcoin’s release, the Block Reward was still 50 Bitcoins, while it is currently only 12.5, which will also be reduced to 6.25 in the near future, which should increase the scarcity again and increase the value through the well-known principle of supply and demand.
The miners are forced to spend a lot of money on electricity, special hardware and its maintenance to keep up with the network. They also have to deal with laws, local regulations and prices on various exchanges. As a result, they will not sell their earned Bitcoin for less than what they have invested in the mine. In addition, they need to make a certain amount of profit to have an incentive to continue participating in the network.
The production of Bitcoins is not free of charge and, unlike FIAT currencies, which can be printed endlessly by central banks, requires a large input of resources beforehand. Bitcoin is also becoming increasingly popular and accepted worldwide. Over time, a large number of companies understand the advantages and potential of the “lead currency of the crypto world”, so they begin to accept it as a means of payment for goods and services. It can therefore be said that Bitcoin has a value in this case that is at least higher than that of traditional currencies.