Why is bitcoin valuable? Analysis of the cryptocurrency phenomenon by Satoshi Nakamoto

Many beginner investors wonder where the value of bitcoin comes from. The final point of surprise is the price of bitcoin, the price of which reaches higher levels with each boom.

For many people, it is more intuitive to invest in material goods such as gold, real estate or jewelry. Nevertheless, digital currencies are very popular. Why is bitcoin valuable and what makes people so willing to invest their capital in it?

From gold to fiat money – a short history of money

Presenting the value of bitcoin requires outlining the appropriate background, which is the history of money. The value of today's fiat currencies, such as the Polish zloty or the American dollar, depends on confidence in the issuer. This was not always the case, as the entire 19th and most of the 20th century was the gold standard, which guaranteed the exchange of paper currency for gold held in bank reserves. The gold standard was introduced in England in 1816, after the economies of Europe and the newly formed United States were shaken by the Napoleonic Wars.

The convertibility of currency into gold turned out to be a great success and this system was introduced in many countries around the world. However, broadly understood global finance quickly reached a wall and decided to pierce it with a financial battering ram, i.e. fiat currency. The gold standard collapsed in 1971, when US President Richard Nixon announced that the United States was leaving the gold standard. Today, fiat currencies are based solely on trust in the issuer. Interestingly, the name of this money comes from the Latin word fides, meaning trust.

Why does bitcoin have value if it is also based on trust?

Bitcoin, like fiat money, is based on trust, and its value is influenced by the natural forces of supply and demand. The difference between traditional money and bitcoin, however, is the direction of trust. Fiat currency is based on trust in the issuer, i.e. in the economy of a given country (to put it simply). On the other hand Bitcoin is built on trust in mathematics – and numbers never lie. The code it is based on The Bitcoin network is publicly available and the rules of its operation are public and equal for all users.

Blockchain technology is popularized by Bitcoin decentralizedthanks to which the value of bitcoin is not influenced by the governments of individual countries, but by the most natural and primary market force – supply and demand. Another factor that makes bitcoin valuable is the maximum number of BTCs that will ever be put into circulation clearly defined in the algorithm – 21,000,000. This makes it impossible to “print” bitcoin, as is the case with traditional currencies (PLN, USD, EUR, etc.).

All this is the foundation and, in fact, the genesis of the first cryptocurrency. An anonymous creator identifying himself as Satoshi Nakamoto began working on BTC during the economic crisis in 2008. These events were perfect proof that the modern monetary system is doomed to failure. Nakamoto wanted to create digital money that would not only have specific value, but also allow users to maintain privacy and give them full control over their funds..

The distinctive features that make bitcoin valuable

Bitcoin – similarly to any fiat currency such as the dollar, euro or zloty – is replaceable, durable, portable and divisible. These features mean that an increasing part of society perceives bitcoin as a legitimate means of payment. In El Salvador, a country located in Central America, bitcoin was recognized as the official national currency in 2021 (on a par with the US dollar). The new president of Argentina is also pro-bitcoin, so it is certain that bitcoin adoption will continue in other parts of the world.

When discussing the unique features of bitcoin, it is important to pay attention to decentralization. Bitcoin has value, among others: because it operates in a decentralized way, i.e. it is not subject to any financial institutions. The bank does not have to approve your BTC transfer because it is done by a decentralized network of computers belonging to the international Bitcoin community, which anyone can join – including you. This is a huge advantage, e.g. in the event of war or bank collapse, which has already happened many times.

It is also worth adding that a huge advantage of bitcoin is its algorithmically limited quantity. Satoshi Nakamoto designed the Bitcoin algorithm in such a way that a maximum of 21 million BTC would be in circulation. They will be issued by the decentralized network until 2140, and by then only a little over 1 million BTC will hit the market because all the rest has already been mined.

The very foundations of the system make it impossible to “mine” more BTC, making it a cryptocurrency is not exposed to inflation. It cannot simply be printed, as is the case with fiat currencies.

Wall Street changes its mind about the value of bitcoin after many years

The fact that bitcoin has value is recognized not only by small investors, but also by the financial world. Interestingly, at first Wall Street was a strong opponent of both bitcoin and other cryptocurrencies. The reason was primarily fear of an alternative financial system that financial sharks could not control.

However, if you cannot defeat the decentralized enemy, you must join him. The result of this concept is a complete change in the approach to bitcoin creation of spot ETF funds based on the first cryptocurrency. In addition, there are further regulations and laws regarding cryptocurrencies in specific regions of the world – both at the state and international level.

Wall Street businessman showing that bitcoin has value.

Bitcoin has value – even Larry Fink recognizes this

The change in the views of the CEO of BlackRock (the largest investment fund in the world) regarding BTC is a perfect reflection of the approach of the vast majority of the Wall Street establishment. In 2017, Larry Fink claimed that bitcoin is a purely speculative asset that is considered a scam. Additionally, he emphasized the risk of criminal use of cryptocurrencies, which was also refuted. Interestingly, over the following years, Fink's views towards BTC clearly softened.

Finally, in 2023, Larry Fink spoke in the media about BTC in only superlatives, calling it international and digital gold assets. BlackRock's CEO admitted that bitcoin had value, and BlackRock filed an application to the SEC for approval of bitcoin ETFs that same year.

To sum up, Satoshi Nakamoto's cryptocurrency has value and can be used for both investment and transaction purposes – as a means of payment. The limited supply of BTC (max. 21 million) makes it resistant to inflation, which is especially important in the context of investing your capital. Subsequent cycles on the cryptocurrency market clearly show that the value of bitcoin is systematically increasing. Especially if we follow all subsequent several-year cycles and its 15-year history.