Skeptics and critics have continuously attacked Bitcoin as worthless and a useless speculated object backed by nothing. I once came across one Bitcoin investor who out of frustration of losing all his investment sided with the popular line by critics that “Bitcoin is worth nothing and Backed by nothing.” I understand that Bitcoin is a very risky investment but to agree that the digital asset is worth nothing is impossible. When you ask me, any fiat currency we use today is worthless if it is true that bitcoin is worthless.
What gives gold its value? I believe many people agree that gold is not worthless. I also think that many people agree that crude oil is not worthless. It is worth noting that gold and crude oil were once useless in some time back until man found some value in them.
Gold was “neutral stuff” in some part of the continent. It had no value to them at all, until they realized that they could use it for many good things. This realization caused many people to go after gold. However, gold does not have an infinite supply. Gold is subjected to scarcity. So the many people demanding it for its function and the fact that gold is finite in supply gave it a value which most people are aware.
What am I trying to say? The value of an asset is determined by scarcity and utility. Bitcoin has a finite supply of 21 million. Bitcoin has a production cost. In other words, people who mine it do not mine it for free. They exchange their computing power for the digital asset.
It is quite funny when people criticize Bitcoin because they think it is backed by nothing. The truth is that there is an ongoing debate on the fact that the U.S dollar is also backed by nothing. When it happens that the U.S dollar is backed by nothing, does it make it less a currency? Of course not. In 2009, a website called “Seeking Alpha” published an article which contained the official statement of the U.S treasury which stated that the U.S dollar is backed by nothing. It is argued that dollar stopped being backed by gold since 1933. Even though the article was taken down from the website, it can still be accessed with the internet archives of “way back machine website.”
If this is true, then what keeps the U.S dollar going? The answer is “the confidence of the people.” The confidence that the U.S dollar is a standard of deferred payment and store of value makes it valuable and not less of a currency.
Bitcoin does not need to be backed by anything to be recognized as a valuable asset or whatsoever. All it needs is the confidence of the people and the recognition that it can be used everywhere for payment of goods and services.