The Value of Bitcoin

June 11, 2021
Jonah Bolden
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The word "Bitcoin" and the word "bitcoin" are two different things. In researching the capitalization of this word, it became apparent that professionals are still trying to understand the best way of separating the Bitcoin protocol, software and supportive community from the actual bitcoin cryptocurrency through use of capitalization or lack thereof. To further complicate things, people have started to use the generic term of bitcoin to refer to any cryptocurrency. When a random person says they are "going to buy bitcoin," they may intend on purchasing ethereum or some other cryptocurrency and not actual bitcoin. This makes it difficult for people with limited knowledge of bitcoin to understand the context of information available to them. Here is the deal in really simplistic analogical form. The Bitcoin protocol (notice Bitcoin is capitalized) is like a railroad system that allows for the transport of data. The data are chunks of bitcoin currency (notice bitcoin is lowercase) that will be assembled at their final destination. The security of the data on the train traveling down the railroad tracks is provided by cryptographic hash functions. Think of these hash functions like force fields that protect the data, the train, and the tracks, like on Star Trek when a force field protects the ship. Because the data on the train, traveling down the railroad tracks, contain the components which make up individual bitcoins, it has even more hash functions protecting them from hackers. This whole scenario of a train carrying the components protected by the crypto force field is what the term cryptocurrency implies. Get it? The currency is the data in the train, and the crypto is what is protecting the data on the train from robbers or hackers.

About Cryptocurrency

To continue this analogy, Bitcoin was the first construction of an operational railroad system.  New railroad systems were created by first duplicating Bitcoins railroad system and protective crypto and then making changes to it. This process is called a "fork."  For example, the cryptocurrency called "Bitcoin Cash" was 'forked" from Bitcoin, meaning it duplicated Bitcoin's railroad system and then added their own tweaks to it.  An important thing to note at this point are the train tracks themselves.  In this analogy, the train tracks represent the Blockchain which is a huge part of cryptocurrency. This is the subject where you will find the geekiest of geeks. The Blockchain algorithm's potential, aside from how Bitcoin uses it, is a delectable subject that only the bravest of layman should attempt to dabble in.  Let's just keep it simple for now - the train tracks are built with a mathematical algorithm called Blockchain, meaning that it is the transport system.

About Money and Bitcoin

The well-known functions of money are defined as being a unit of account, a medium of exchange, a store of value and a standard of deferred payment.  There are many well informed and extremely knowledgeable people who are debating how many of these functions Bitcoin seems to provide, but the one function that almost everyone agrees on is that Bitcoin is a medium of exchange - that is why it will not disappear and fade into nothingness.  There is a demand for a medium of monetary exchange that is not controlled by a centralized agency and that demand has been created by the human condition, mostly the part of the human condition that societies tend to ignore.

Bitcoin is rescuing people who only have access to limited funds due to their government's actions, like in Venezuela at the time of this writing. Crypto exchanges have popped up in places where populations have a desperate need to transfer funds without restrictions.  In some cases countries outlaw cryptocurrencies so there are many battles in progress in that regard, but the fact of the matter is that bitcoin is infiltrating countries because good people need it.  And yes, bad people use it too.  Terrorist organizations, pedophiles, and all the worst of humanity take advantage of bitcoin to facilitate their dirty deeds in the same way they use any form of currency.  The bottom line is that the human condition has created the need for this medium of exchange and based on a realistic view of humanity (evident by the persistent presence of organized crime), the bitcoin, and its protocol are not going anywhere.  How fast it grows is based on adaptation by the major players in our shared global world such as the overarching financial institutions and acceptance by nation-states.

Three reasons bitcoin is valuable and will remain valuable

The first reason why people see bitcoin as valuable is due to planned scarcity. In our train scenario, imagine that the train's data comes from a mine, like a coal mine, where people have to dig in order to find it.  There is only so much coal in the mine, so when the last of the coal is mined, there is no more.  That is what is happening with bitcoin with the exception that it becomes harder and harder to mine bitcoin when there are fewer left to mine.  There is a mathematical calculation of how many coins can possibly be mined in a specific time frame.  At this moment, there are still over 3 million coins to be mined out of the total of 21 million bitcoins that were created.  This planned scarcity is intent on increasing bitcoin's value for years to come based on economic principles.

The second reason it is valuable is because it provides a way to transfer money globally, and for the experienced bitcoin aficionado, the transactions can be completely anonymous.  The transactions are recorded in real time in a global ledger that anyone can see at any time on the Internet.  The ledger only notes the wallet addresses from which money is transferring to and from and associated technical data that monitors the progress of the transaction.  Being mindful of one's wallet address is where anonymity is forged.

The third reason that bitcoin is valuable is actually because of Bitcoin the protocol.  The protocol and methods have not been fully explored.  In my analogy of the train riding on the tracks, the protocol and methods are what has built the tracks and has been built into the tracks.  Many people much smarter than myself see a value in the algorithms and are exploring it for varying purposes.  The point is, the technology provided a whole new way of doing things and its potential is still being explored.

Bitcoin Scams

There have been many bitcoin scams, from companies who offer bitcoin services suddenly shutting down and running off with all their customer's bitcoins, to criminals demanding that ransom is paid in bitcoin.  There are hundreds of horror stories associated with bitcoins and it seems such an assault on consumers would result in bitcoin falling out of favor and just disappearing. But as we see, bitcoins are still here and with a more positive image with each passing year.  In my opinion, the forces that created the demand for the Blockchain and bitcoin are greater than the scams derived from its existence.


In summary, the distinction between Bitcoin and bitcoin, is that Bitcoin refers to the protocol, the software and the community of developers and users, while bitcoin refers to the currency itself. And sometimes bitcoin is used to imply any type of cryptocurrency. There are many different types of cryptocurrency, but bitcoin was the very first cryptocurrency.  There is a consensus among people in the know that Bitcoin definitely fulfills one of four functions of money and that is the function of being a medium of exchange. Every day there are people in many countries whose well-being depends on funds delivered via the Blockchain in the form of bitcoin and other cryptocurrencies.  Bitcoin is valuable because of its innovative protocol, and its ability to meet a demand that had already existed, still exists and will continue to exist. The demand is born out of the human condition, however, inroads into acceptable and authoritative society depend on a myriad of factors involving nation-states' legal permission and adaptation from the global financial community.  There is also potential for increased value through the planned algorithmic scarcity.  Considering all these things, it appears that Bitcoin will eventually gain greater inroads into authoritative acceptance and its value will increase, although it may take years for it its value to stabilize enough to provide all four functions of money.

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