Why is Bitcoin worth so much?

A few years ago, many people where convinced that Bitcoin would dissappear quickly and would not even be worthy to be mentioned in the history books. And even today, 8 years after Bitcoin was unleashed onto the world, many people still expect Bitcoin to die sooner or later. I don't blame them. Most people are very sensitive to what the media tell us. The media repeatedly predicted the dead of Bitcoin in the past eight years and together with banks and governments they proclaimed that Bitcoin could and should not be trusted. When Bitcoin exchange Mt. Gox collapsed in 2014 I heard people say: "Bitcoin is dead and Bitcoin's CEO is arrested".
But of course Bitcoin still exists and we started this year, 2017, with a price of over $1,000. How can a 100% digital currency that is not backed by any government or bank be worth so much?

Bitcoin and the blockchain

Since late 2015, media and banks began to shift their focus from Bitcoin to the blockchain. They wrote less about Bitcoin, but began to praise the blockchain, the underlying technology behind Bitcoin. Each Bitcoin transaction must be stored somewhere to prevent someone to spend his money several times. For this, among other things, the blockchain is used. A decentralised and open ledger that records transactions between two parties efficiently and in a verifiable and permanent way. The network runs on the basis of rules proposed by a lot of experts and then may or may not be accepted by the market, such as the Internet also came into being.

image source: dilbert.com

According to the media and the banks back then not Bitcoin, but the blockchain was the real innovation that would change the way we pay drastically. Almost all major banks began to experiment with blockchain technology. Should we forget about Bitcoin and focus on the blockchain only?

Bitcoin has been running non-stop for 7+ years

Each day, about 250,000 Bitcoin transactions are currently being processed by the Bitcoin network with a total daily value of about $200,000,000 US Dollar. And this is still increasing. This is a huge amount of money! If people wouldn't trust the Bitcoin blockchain, such an amount of money would never be transferred by the network. I'm not saying Bitcoin is perfect. It has a lot of challenges ahead, but it's safe to say Bitcoin will never just disappear.

Image source: blockchain.info

Why the Bitcoin price surged in 2016?

There were many reasons why the price of Bitcoin surged last year and many experts did extensive analyzes and wrote about it. Here are 4 reasons that have contributed to the price surge the most in my opinion:

1. Global political and financial uncertainty.

Governments and central banks all over the world are printing money and global debts keep on rising. Each new citizen that is born in the United Stated starts with a debt of $42,500 dollar. An increasing number of countries have a public debt greater than 100% of its GDP. The U.S. debt increased $9 trillion during President Obama's eight years in office. Where does this end?
More and more people prefer to invest in something that is less affected by political decisions. Welcome to Bitcoin!

Image source: howmuch.net

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2. The war on cash

More and more countries begin to limit or prohibit cash to monitor transactions. India, Venezuela and Pakistan were probably just the beginning. There is a global war to get rid of cash and force everyone to participate in a system where every transaction can be monitored by the governments. Bitcoin is a reaction to this. People want to preserve their privacy and do not want to give so much power to a handful of players.

image source

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3. Inflation

Inflation in many countries is very high, which means the local currency is not a good store of value. People in those countries are forced to buy more stable currencies, gold, silver or anything else that has a good store of value. An increasing number of people decide to store a part of their wealth in Bitcoin.
We might not have an inflation above 1,500%, as in Venezuela, but even with an annual 2% cut you lose half of your purchasing power in 35 years. Something to think about.

Image source: actualitix.com

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4. Bitcoin is stable

Meanwhile, Bitcoin exists eight years. It has never gone offline. Every day new people are learning to use it. Year after year it is the best performing currency. Every year that passes is a confirmation that it is indeed working and that it has potential.

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Bitcoin in 2017

What will the bitcoin price be in 2017? Of course, we don't know yet. I see Bitcoin as a long term investment so what does one year matter? I expect the price to be higher at the end of this year, but who knows what will happen during the year. When I compare Bitcoin's current daily transaction volume with other players like Visa and MasterCard, Bitcoin is still very very small. See the chart below. This means, there is still a huge potential for a much higher Bitcoin price in the years ahead. Although nothing is certain in the Crypto space, I can't believe Bitcoin won't make new all time highs ever again.

Image source: Statista

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