Trying to figure out the real value of Bitcoin based on a number of financial criteria
The Blockchain Technology is absolutely suitable for the industries which require a middleman to carry out all the transactions. The blockchain technology is basically a Distributed Ledger Technology. Any kind of information can be stored on an open Blockchain which is visible and verifiable by each and every node of the network. As the blockchain is available to all the notes of the network any tampering done with the data in the blockchain can easily be recognized and hence this provides for a tamper-proof storing of documents. The question arises, what is the value of bitcoin?
The cryptocurrencies are nothing but one of the implementations of the blockchain technology where the transactions are regarded as the information which is stored on the blockchain are regarded as the information which is stored on the blockchain. These transactions are in turn verified by a number of Nodes on the network known as miners.
Since its inception in January 2009 the most prominent and notably asked question is that, what is the real value of Bitcoin? According to Warren Buffett, the real intrinsic value of Bitcoin is not that much and he even disregards cryptocurrencies.
A proper answer to this question can be obtained if one considers two economic and financial aspects of the cryptocurrencies which are the minimum value and Ponzi scheme.
Value as currency or investment.
Under the minimum value method, we understand what happens if the cryptocurrency market goes down to its extent due to market disruptions. First of all, we need to have a very clear vision of what the cryptocurrencies are? investment Asset or a Currency which is to be used on a daily basis for transactions. One can conclude that the cryptocurrencies are not tied to any of the central banks or financial institutions.
We observe that all the Fiat currencies are managed and developed by some of the other Central Bank but this is definitely not the case in cryptocurrencies because it is not managed by any of the central bank or any institution, but it is completely decentralized and controlled by the people. Therefore the Bitcoin exchange rate with that of the US dollars can go down to null, at least theoretically.
According to current trends, cryptocurrencies can surely not be classified as a currency but it is only seen as an investment asset. In the field of finance, the intrinsic value of any financial asset is calculated by finding out the sum of all the future revenues that it generates, but as it is evident that Bitcoin does not generate any current as well as future revenues, therefore it’s intrinsic value according to the financial definitions is absolutely zero.
Is it a digital gold?
Since Bitcoin does not actually generate any kind of Revenue, it is considered a digital synonymous with another financial asset in the traditional market with doesn’t generate revenues, that is gold. If we calculate the intrinsic value of the gold it is dependent on its minimal industrial use. Even if we consider gold to have no financial value then due to the product which is developed from its industrial use, it would gain some minimal value. Contrary to which, Bitcoin doesn’t have any industrial use and hence cannot gain some minimal value.
A Ponzi scheme?
As we came to a conclusion earlier, that Bitcoin doesn’t have any intrinsic value then how does it tend to have some value, practically, in the current market conditions. This is very clearly explained by the most popular investor Warren Buffett as the only thing we are looking forward in a bitcoin investment is that the next person in the investment would be paying more. Now let us try to define what is a Ponzi scheme. It is basically a dishonest investment scheme where the older investors are paid by the investments made by the new investors. This definition can completely be related to Warren’s definition of Bitcoin.
All the Ponzi schemes tend to provide no solid foundation for asset value. All such schemes leave the investors disappointed as it unravels. A Ponzi scheme fails when it doesn’t get the required amount of new investors or the older investors begin to pull out. Hence if Bitcoin investment is really a Ponzi scheme, then time is not far, that the complete breakdown of the Bitcoin market can be witnessed due to the next economic crisis.
It does have real value.
According to another concept in finance, any particular commodity has value if it is eligible for scarcity and utility. As we all know that the total number of Bitcoins is capped and is around 21 million coins which make the commodity scarce. This is very similar to that of Gold and in fact even better than that. It is well known that with the advancements in the technology the gold can be mined easily, but if we consider Bitcoin the mining difficulty will keep increasing always. We can neither find a treasure chest full of Bitcoins, unlike gold.
The cryptocurrency world is full of paradoxes and estimating the real value of Bitcoin is one of the underlined one on the list.