Economic Information about Bitcoin
- How are Bitcoins created?
- How is there a value to a Bitcoin?
- How is the price of Bitcoin determined?
- Is it possible that Bitcoins become worthless?
- Is Bitcoin a bubble?
- Will it not be a limitation that Bitcoin has a finite amount?
- Is a deflationary spiral a possible scenario for Bitcoin?
- Isn’t volatility and speculation a problem for Bitcoin?
- Can someone buy all Bitcoins?
How are Bitcoins created?
You basically have earn Bitcoins like you dig for gold which adds ( if you are so lucky to find it) gold to the total global gold reserve
This competitive and decentralized process called “mining” Individuals are rewarded or paid by the Bitcoin network for their services and activities. Bitcoin miners are processing transactions and securing the network using specialized hardware and are receiving the new Bitcoins in exchange.
The Bitcoin protocol is specially programmed in such a manner that new Bitcoins are created at a fixed rate. This is what makes mining for Bitcoins such a competitive business.
when over time more and more miners join the network and start earning all from the same pool it will be harder and harder to actually make a profit on this. they are unable to manipulate the system so they have to find their way in how to cut their operation cost in order to get a positive ROI
Bitcoins are created at a decreasing and predetermines pace and predictable rate. The total amount of new Bitcoins created each year is automatically halved over time until Bitcoin issuance halts completely with a total of 21 million Bitcoins in existence. When this level is reached, the miners of Bitcoins will most likely only make money on supporting the numerous small transaction fees.
How is there a value to a Bitcoin?
In the old days shells Jade or ivory were also used as a legal form of money they all follow the following characteristics of money (portability, durability, scarcity, divisibility, recognizability and fungibility)
Bitcoin is based on Math, unlike gold or silver which is based on its physical properties or trust in central authorities (like fiat currencies). As with all currency, bit coin’s value comes only and directly from people willing to accept them as payment. All that is needed for a kind of money to hold value is people to start using it and having trust in this currency. When we look at Bitcoin, this can be measured by its growing base of merchants startups and private users.
How is the price of Bitcoin determined?
The oldest way of value is dictating the value of Bitcoin and this is supply and demand. As a result when demand for Bitcoins increases, the price of the Bitcoins will increase, and when demand falls, the price falls. Currently there is only a limited number of Bitcoins in circulation and new Bitcoins are created at a predictable and decreasing rate, which will result in the fact that demand must follow this level of inflation to keep the price stable. Bitcoin is still a relatively small market at this moment so it doesn’t take enormous funds to move the market price up or down.
This results in a very volatile market which in turn is very interesting for traders.