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    Bitcoin’s value as a currency and investment

    The real value of Bitcoin

    One of the most recurrent questions that came to everyone’s mind since the inception of bitcoin has been, what is the actual value of a single bitcoin. And if we take the answer from the world-renowned investor Warren Buffet then, the answer to this question is not much. 

     

    In this article, we try to discuss the answer to this popular yet fundamental question in two separate ways, and both derive from the study of economics. The first would be minimal value, and the second would be Ponzi schemes. We will try to find out what will be the probable value of bitcoin in case a difficult situation arises during an economic crisis or market disruption. 

    Bitcoin’s value as a currency and investment

    Before we talk about Bitcoin, we need to define it as a currency or an investment or both. The use of bitcoin for paying merchants can lead us to the fact that bitcoin is a currency. It can be considered a currency that is not tied to any country, authority or government. The value of bitcoins is normally measured by determining their exchange rate with USD and Japanese Yen. 

     

    Each and every currency has its own central bank that looks after the exchange rate of that particular currency against other currencies, especially dollars. Now in the case of bitcoin, it does not have any central bank backing it up. So there is a theoretical possibility that the exchange value of bitcoin against the Japanese yen or US dollar can go down to zero.

     

    Some people also think that bitcoin is not a currency but rather an investment. But an investment’s intrinsic value is measured by the sum of the revenues it generates. Bitcoin does not generate any present or future revenue. Therefore in terms of investment, bitcoin has zero minimal value.

    Bitcoin as the new gold

    Some assets do not generate revenues, and the most prominent among them is gold. Because of the similar property, Bitcoin is often compared to gold as an unproductive asset. But in this scenario, gold has a minimum value because of its industrial use, whereas bitcoin does not have any practical utilisation. Therefore it cannot have any minimum value.

    As a Ponzi scheme

    After all this, why does bitcoin still have so much value in the market? According to Warren Buffet, the next person is willing to buy for more than the previous buyer who is now selling the coin. This method indicates that it can be a Ponzi scheme. 

     

    Ponzi scheme is an illegal and banned method through which the previous investors are paid using the money of new investors. And for this scheme to work, people will have to continue investing in the asset or scheme. 

     

    Nevertheless, we cannot say for sure what will be the future of bitcoin or other cryptocurrencies, but both the corporate world and the government of different countries are gradually taking their own stand on cryptocurrency and blockchain technology.

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