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Why do bitcoins have value ?

Although cryptocurrency has become a household topic in 2017, what most households don’t understand is — why does cryptocurrency, such as Bitcoin, have any value? (Many actually think crypto has no value at all. But when you ask them why, they couldn’t answer because they have never really thought it through.)

In the early state of society, the value of a good or service was determined by the amount of labor required to produce it, and then the need for exchange of goods and services bred currency. For example, Bob spent a year to raise a cow and it took Alice the similar amount of labor to raise three lambs. Alice wants to buy cow so she exchanged Bob’s cow with three lambs. However, using livestock as a medium of exchange (barter) was very inconvenient so some people started to use gold instead. When gold was widely accepted as the medium of exchange, it became a currency. You may wonder, did gold come out of thin air and was abruptly assigned a value? Of courses not. Some people spent a lot of time and resources to mine gold so there was labor behind supporting its value. (The situation is more complicated under modern economy where owners of capital are compensated by profit, but we can skip it for now).

If you believe in this theory, then bitcoin has value because they are useful as a form of money. Bitcoin and altcoins have the characteristics of money like: (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies).

All that is required for a form of money to hold value is trust and adoption. In the case of Bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, bitcoin’s value comes only and directly from people willing to accept them as payment.

(P.S., on a different note, it is still a debatable topic whether Bitcoin is a currency or commodity. Satoshi’s original purpose was to create a digital currency but it looks more like a commodity based on the reaction of the market.)

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