A Beginner's Guide to Cryptocurrency & Bitcoin: Part 2 - How Bitcoin Got Its Value
Where does money get it value from? What makes that piece of 10 dollars in your wallet worth 10 dollars?
The short answer is that someone said so, another person agrees, then sooner or later everyone jumps in and agrees with it. In the case of the world’s currency, that value is determined by the central bank and the countries around the world. Enough people believe in it, so it must be true. Yes, I’m over simplifying things, but without getting into a full blown economic discourse, that’s how money gets its value, in a nutshell.
The same goes for Bitcoin. In the early days, when Bitcoin was being mined and played around by geeks in the crypto community, it was just a very cool Peer 2 Peer technology just like Bittorrent, except has the intended use to facilitate transaction between two people across the internet.
The very first time Bitcoin had any real world value was when programmer Laszlo Hanyecz called for a pizza delivery with 10,000 Bitcoins. If you base it on today’s (Jun 2017) Bitcoin value, that pizza is worth over 20 million dollars. Of course back at that time, what’s 10,000 Bitcoins other than a bunch of intangible bits and bytes floating around in cyber space? When more and more people started trading digital currency for real world products, suddenly there is a rising awareness that there must be some worth to this digital currency if it can get you real things.
What would you have said to your boss if he offered you 10,000 bitcoins 8 years ago instead of your paltry internship salary?
Enough people believe in it, that's when the value comes in. I’m willing to bet that probably a quarter of the people who invest in Bitcoin or other cryptocurrencies today do it because others are doing it. Which brings us back to what I said earlier in this chapter.
Some of you might be thinking. This sounds just like another ponzi scheme. A giant bubble waiting to burst. Will it? Click on the Part 3 of this video series to find out.
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