When the government demonetized a few currency units a few years ago, 500 and 1,000 became worthless overnight. So, what gives 2,000 its current value? Of course, there’s a complex relationship in supply-demand metrics, but it all comes down to trust. The faith we have in the government and the monetary system in place. Bitcoin (BTC) is not issued or backed by a central bank, so where does its intrinsic value come from? When discussing the value of Bitcoins, factors such as decentralization, distribution, scarcity, security, and trust systems all play a key role.

Distribution, Decentralization, and Security

Instead of relying on central authorities, blockchains empower and liberate users. No single entity can make decisions on behalf of everyone. DLT (distributed ledger technology) is non-restrictive and permissionless. They are both transparent and safe. DLTs do not store information in a single location. Instead, it disseminates data via a peer-to-peer network. The distributed ledger technology (DLT) and its immutable record of transactions are available to all network participants.

A blockchain network provides greater trust and security because network members will receive accurate and timely data. Furthermore, no one can delete a transaction.

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Scarcity & Trust

The main source of value for Bitcoin is its limited supply and rising demand. Its supply is set to be limited. Bitcoins, unlike traditional currency, are not printed. Instead, they are extracted from the system. To approve consensus-based transactions, Bitcoin uses a decentralized network of independent nodes.

In general terms, a miner is a collection of computers (or nodes) that run the mining program. There will only ever be 21 million BTCs.

A scarce asset can command a high price, whereas a great asset can command a lower price. Bitcoin supply has been decreasing since its inception. Bitcoins can be created at a fixed rate, and that rate is designed to slow down over time.

The value of Bitcoins mined per block is reduced by half every 210,000 blocks or roughly every four years. Miners use software to solve transaction-related algorithms that verify Bitcoin transactions. So, every 10 minutes, a certain number of BTCs are added to the supply, but this supply is adeptly designed to be reduced by half every four years.