Course blog for Informatie 2040/CS 2850/Econ 2040/SOC 2090

The Bitcoin Phenomenon: How Cryptocurrencies Build up Value

A Google search for “Bitcoin” comes back $738.99 USD spil the current value of 1 BTC.

Ter 2010, one Bitcoin wasgoed worth $0.008.

So how did Bitcoin become the fattest cryptocurrency ter the world within 6 years?

Originally conceived ter Japan by Satoshi Nakamoto, Bitcoin wasgoed designed spil an open source peer-to-peer cryptocurrency. Nakamoto designed the Bitcoin system to generate its own digital currency. Through a process called “mining,” users could obtain fresh Bitcoins te exchange for computational power. But no currency can be unlimited. Spil more Bitcoins were procured, the mining process became exponentially firmer. However, this did not deterred users: miners have invested millions of dollars into mining farms, facilities housing thousands of computers dedicated to harvesting Bitcoins.

Te order to explain the growth of Bitcoin, wij voorwaarde very first establish the value of currency. By itself, specie has no intrinsic value. It is only because society spil a entire accepts specie spil a medium of exchange for actual goods that wij place any faith into the green papers te our wallet. Some currencies are more stable te value than others, such spil the American dollar, which is permanently regulated by system such spil the Federal Reserve, overheen nations whose currencies fluctuate ter value due to unstable economies. Here wij see the demonstrable presence of direct-benefit effects: the American dollar sustains its value because the American people trust ter its stability.

Not remarkably, Bitcoin’s rise te value wasgoed also driven by network effects. At its inception, Bitcoins were practically worthless due to the puny community of people who used them. However, spil soon spil the very first “legitimate” organization (Wikileaks) began accepting the cryptocurrency, Bitcoin experienced a surge ter popularity. Ter the eyes of the people, thesis “endorsements” for Bitcoin indicated potential positive payoffs. A cascade began: spil more merchants accepted Bitcoin spil a form of payment, more users flocked to the virtual currency. Similar to the fax machine example, what began with little intrinsic worth accumulated more value spil more people used it. And Bitcoin continued to grow spil the thickest cryptocurrency to date. Economists have predicted that “bitcoins will attain their true value of zero sooner or straks, but it’s unlikely to say when.” Looking at Bitcoin’s current rate of growth? Not anytime soon.

November 25, 2016 | category: Uncategorized

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