Bitcoin’s Value Lies In Its Utility
Before we discuss the utility of Bitcoin, first you must understand the basics
of how it works. You are connected to the community of Bitcoin users
through a computer network, and the ledgers that Bitcoin uses is called a
blockchain: transactions are compiled into blocks, which in turn are
connected in a chain-like manner, hence the name.
The ledger keepers are called miners, because what they are doing,
essentially, sounds very much like gold miners who work hard to find gold:
they are working for the reward in the form of bitcoins, which, like gold, are
limited in supply.
So now you know how Bitcoin works. What does that have to do with its
value? Everything, actually. Bitcoin’s value is in its utility: its
decentralization, security, and ease of transaction.
First, let’s look at Bitcoin’s decentralized system. Bitcoin is designed such
that there is no need for any governing authority to control it. It operates
through a peer-to-peer network where all transactions are recorded in the
blockchain.
On the most basic level, this would mean that it is not tied to any state and
therefore is the only truly borderless currency. What this means is that you
can conduct transactions with people from different countries easily
because you’re using the same currency.
On a deeper, much more complicated level, the decentralization of Bitcoin's
system creates the possibility of transforming the finance industry.
The finance industry offers multiple ways to simplify transactions for ease
of convenience. There are credit and debit cards, money transferring
systems, electronic bank transfers, etc. But all of these systems need to
have a middleman to function—they need a company or authority to
facilitate the exchange.
And what you’re doing whenever you make a transaction is that you’re
putting your trust on the middleman—that they will get your money through
or keep your money safe among other things. There is also the matter of
transaction fees, which, considered per transaction, is not too much, but
can easily pile up over time. What Bitcoin does is it eliminates the need for
these middlemen.
As mentioned above, all transactions in the Bitcoin network are recorded in
the blockchain by miners. While the blockchain and miner network has the
semblance of a governing body in the sense that it keeps track of all
bitcoins in existence, it’s still in the public domain and therefore cannot be
monopolized.
This means that no single person or group of persons has a hold on the
network—which, in turn, means that bitcoins can remain fully
transparent and neutral in its transactions.
But if there is no official body acting as a regulator, who can you trust to
make sure that transactions do go through? The answer: no one. And it
sounds bad, but it’s actually a good thing.
The Bitcoin system is designed to operate without the need for trust. See,
it’s not simply a digital currency, it’s a cryptocurrency, which means that it is
heavily based on encryption techniques to keep it safe.
Instead of operating based on customer trust, Bitcoin operates using tried
and tested mathematics (more on that later). Cheating the network is
impossible due to its public environment.
Not only that, but the system is encrypted so that trying to commit fraud
would require an extremely large amount of computing power, which would
by then have been more useful if you just used it to mine more bitcoins.
The security system, aside from ensuring the reliability of Bitcoin
transactions, also ensures that the identity of the Bitcoin users can be
protected. Unlike in credit cards, your account number does not have any
value in your transactions, which are ultimately verified using a private and
public key.
It works like this: you put a digital signature to your transactions using your
private key which can be verified by the users of the network using your
public key. The keys are encrypted so that the public key can only ever
work if you had used the correct private key in the first place.
This means that:
- Your identity can’t be stolen by criminals to make fraudulent
transactions in your name. - You can choose to remain completely anonymous in the Bitcoin
network, which may prove useful for some.
Lastly, bitcoins have the possibility of providing an ease of convenience
that surpasses the traditional paying methods that we already have now.
According to the Bitcoin site, using bitcoins allow you “to send and receive
bitcoins anywhere in the world at any time.
No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to
be in full control of their money.”
