The Economy of Bitcoin
As a digital currency operating on a decentralized and uncontrolled network, the economy of this commodity is drastically different to the economy associated with fiat currency. Due to this, many people have a hard time understanding the value of Bitcoin or its authenticity.
Therefore, we’ve put together a list of the most commonly asked questions concerning the economy of Bitcoin to help resolve any doubts and paint a clearer picture.
How Do Individual Bitcoin Come Into Circulation?
For new bitcoin to enter into circulation, they must be mined. Mining also enables new transactions to be confirmed by the network, as well as being a key part of the development and maintenance of the blockchain ledger.
The action of mining is carried out via means of the miner (you) using sophisticated and powerful hardware which can solve incredibly complicated math problems. The first computer to solve the problem validates the block and collects the reward - the bitcoin.
This process then repeats itself over and over again. Roughly 900 bitcoin are currently mined each day, although this will become less as the years go by.
Mining for BTC can be slow, expensive, and it isn’t guaranteed to be rewarding for you. For example, if you mine alone rather than as part of a mining pool and you use less powerful hardware, it could take years and years for you to mine just one block. It could even take years and you mine zero blocks.
Due to this, many people opt to join mining pools as a way of increasing the potential return of Bitcoin for a much smaller investment amount.
Why Does Bitcoin Have Value?
Bitcoin is a form of currency, it has the characteristics of a currency and people willing to spend it and accept it, and therefore, has value just as other currencies do. Its characteristics of divisibility, recognizability, fungibility, scarcity, divisibility, portability, and durability, are all based on math.
It doesn’t need to rely on physical properties like gold and silver or a trust in a central authority like banks with fiat currency which also adds to its value.
What Determines Its Price?
Every commodity in the world is affected by supply and demand. Supply goes up, the price goes down. Demand goes up, the price goes up. Bitcoin is included in this list of commodities and its value is absolutely affected by supply and demand.
You see, Bitcoin is limited to 21 million coins. Once all 21 million are released into circulation, there will be no more to mine or mint and the only way to get hold of one will be through buying or exchanging.
So, with each passing day, more BTC is being mined and fewer are left remaining.
This means that the increased interest in BTC over the last few years and the relatively small number of Bitcoin left have contributed to the drastic prices of Bitcoin’s value. The more people want to get hold of Bitcoin for themselves and the fewer there are to get hold of, the more valuable they are likely to become.
Can Bitcoin Become Worthless?
Unfortunately, yes. However, this potential is not due to it being a digital or unregulated currency. Even some fiat currencies had their own downfall. Most notably the German Mark during the Weimar Republic, the Zimbabwean dollar due to overprinting, and most recently the hyperinflation in Venezuela.
The good news is that Bitcoin cannot suffer from hyperinflation. Bitcoin can’t be overprinted, over minted, or overmined. The bad news is that competing cryptocurrencies, technical issues, changes in regulation, and problems in politics could all greatly affect Bitcoin’s value negatively.
While no currency, digital or otherwise, can ever be trusted 100% to not lose its value or be the subject of a great downfall, Bitcoin has so far proved itself. It is a volatile currency but is reliable, trustworthy, and safe which all contribute to its strength.
But no one can guarantee or predict what will happen to any currency in the future.
Is Bitcoin a Bubble?
A bubble is recognized as being an artificial over-valuation that leads to a sudden downward correction. But a quick price rise is not a bubble.
However, when Bitcoin experiences these sudden price rises, far too many skeptics are quick to jump on ‘the bubble’ bandwagon simply because they don’t understand what it means.
The price fluctuations of Bitcoin are down to reasons such as the media, news influences, celebrity influences, its age, regulation changes, supply and demand, etc. The fluctuations, dips, crashes, or increases are never because Bitcoin is a bubble.
Is Bitcoin a Ponzi Scheme?
Understandably, people often accuse Bitcoin of being a Ponzi scheme. However, just like with Bitcoin being branded a bubble, these people only report their opinion of Bitcoin being a Ponzi scheme because they don’t understand well enough what it means.
By definition, a Ponizi scheme is an investment operation that pays its investors returns from their own money or money paid by the next group of investors. Rather than from a pool of funds that is outright profit from the investment. This type of scheme is obviously illegal and requires a lot of fraudulent activity.
A Ponizi scheme will eventually collapse and the losers will be the last group of investors who can’t get money from another group since another group doesn’t join.
Bitcoin is nothing like this scheme. It has none of the traits of this scheme, and investing in Bitcoin doesn’t require any fraudulent activity to take place.
Bitcoin has no central authority, no one person or organization controls the network. Investors’ profits come from selling their Bitcoin to those willing to buy rather than from a pool of funds that are from another person or group of people.
Bitcoin is an investment, a payment system, and a secure, tradable decentralized currency. There is no comparison to be made to a Ponzi scheme.
Have Only Early Investors Benefited from Bitcoin?
While those who have made the most money from Bitcoin are more likely to have been early investors, not every early investor was a winner. It’s true that at the beginning, Bitcoin was being sold for a few cents or a few dollars, and those who bought ten years ago and kept hold of it could easily be millionaires now.
However, many who bought Bitcoin back at the start lost faith in its value, and spent or sold it for just a few bucks. There are undoubtedly thousands of people worldwide who kick themselves every day for having sold too quickly after having been an early investor.
On the other hand, those who bought Bitcoin just two or three years ago could have doubled or tripled their investment by now and are much better off than many early investors. The only early investors who benefited far more than anyone else were those who held their crypto for a decade.
Besides, if you bought one Bitcoin 3 years ago for $20,000 and in a decade it’s worth a million dollars, then you’re definitely not going to feel like you missed out on the opportunity that early investors had.
Do the Finite Amount of Bitcoin Create Limitations?
Once 21 million Bitcoin have been mined there will be no more. The only way to get hold of Bitcoin will be to buy or exchange Bitcoin that is already in circulation.
Nonetheless, this limit won’t place limitations on the currency because it can be broken down into subunits. You don’t have to spend, buy or sell one Bitcoin, for example, rather you can spend, buy or sell 0.5 Bitcoin, 0.05 Bitcoin, etc.
So, if you break each Bitcoin down into “bits”, you can have 1,000,000 bits in one Bitcoin. Furthermore, Bitcoin can be sub-united down to 8 decimal places but this could increase in the future if required. This leaves a lot of room and potential and prevents limitations.
Will Bitcoin Go Into a Deflationary Spiral?
According to economicshelp.org, “A deflationary spiral occurs when falling prices cause further deflationary pressures to cut prices. Deflation creates expectations of further price falls, and therefore consumers reduce their spending because they expect goods to become spending in the future.
This fall in spending creates further deflationary pressure in the economy. Deflation increases the real value of debt. This makes it harder to meet repayments and companies are more at risk of going bankrupt. Because bankruptcies increase, banks become reluctant to lend. This leads to a further fall in spending and investment.”
So, this theory is true for central bankers, or can at least be used to justify inflation. However, Bitcoin is not designed to be a deflationary currency. Rather, it can be said that Bitcoin is designed to inflate early on then stabilize years down the line.
What Happens If Someone Bought All the Existing Bitcoins?
As of the time of writing (February 16, 2022), 18,960,125 BTC have been mined in total. While a percentage of those will have been “lost” due to people losing or forgetting their private key, this is the number that has been released into circulation.
And only a fraction of those are currently on exchange markets looking to be sold.
Even with the most will (and money) in the world, it’s simply impossible for anyone to get their hands on all of the Bitcoin that exists right now.
What Happens If A Cryptocurrency More Popular Than Bitcoin Is Created?
Never say never. Bitcoin is enjoying the high life right now of being the most popular kid in school and has been since altcoins started being created to join Bitcoin. But that doesn’t mean Bitcoin will always be the most loved, the most popular, or the coolest crypto on the market.
You can be assured knowing that for another crypto to overtake Bitcoin in these areas that it would have to have significant improvements. For now, Bitcoin is the most established on the market and looks to hold that title for the foreseeable. Nevertheless, as always, it’s impossible to know what the future will bring.
Expand Your Bitcoin Horizons with Mining Syndicate
If you would like any more information about starting or expanding your Bitcoin horizon; reach out to us at Mining Syndicate. Our mission is simple: Strengthen the Bitcoin network by enabling small-scale miners to affordably purchase and reliably host miners.
As a small miner, Chris became frustrated by the lack of hosting options available for miners with under 100 units. As luck would have it, he found a 2.5MW mining facility for sale right down the road, and thus, Mining Syndicate was born. Facilities #2 and #3 are currently launching and #4 and #5 are in the works.
Why is Mining Syndicate so successful? Because we have a team of people who are just like you, eager to be a part of the future of mining. If you would like more information about how you can be a part of Mining Syndicate, how our facility works, or the products we sell, you can reach out to us here.
You can also check out our list of miners we currently have in our catalog, as well as our list of best sellers.
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