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What Determines the Price of 1 Bitcoin?

  • Difficulty Level : Medium
  • Last Updated : 13 Sep, 2021

Bitcoin is a type of digital cryptocurrency that was first introduced in January 2009, it is decentralized meaning there is no central authority controlling him rather bitcoin is peer-to-peer or controlled by the people that use it. Bitcoin has no international transaction fees and lots of would say no currency regulations either.

Cryptocurrencies or digital currencies are electronic tokens generated by a network of computers to replace traditional currencies, bitcoins like other cryptos currencies such as a light coin or aetherium have valued the exchange of conventional currencies and commodities for the tokens through special internet exchanges such as BitPay.

Bitcoin is by far the most popular cryptocurrency and was created by an individual known only by the pseudonym Satoshi Nakamoto, Nakamoto limited the number of bitcoins generated by the distributed network of computers in his exchange to 21 million.  This limitation in supply ensures demand for the tokens which subsequently increases its value all Bitcoin transactions are recorded in a huge distributed ledger called a blockchain.

Mining a Bitcoin

Bitcoin transactions are grouped into a block and added to the public ledger by a process called mining. Bitcoin mining is used as a way to verify legitimate bitcoin transactions from fraudulent attempts to respect bitcoins each block is encrypted using a different mathematical algorithm that requires substantial computing power to solve.
Once a block is mine it must contain proof of work before it’s added to the blockchain after a block is verified and accepted, the miner that solved or verify the transaction is paid a subsidy of newly created Bitcoin thus the purpose of Bitcoin mining is twofold first and foremost to verify and record Bitcoin transactions and secondly to introduce new bitcoins into the system. 
Although Bitcoin can be used to purchase many legitimate goods and services, it is undoubtedly an easy medium for criminals to engage in illegal activities such as money laundering the purchasing of illegal goods, or any other transaction that criminals wish to be untraceable.

Understanding what determines the price of 1 Bitcoin

As bitcoin isn’t issued by a financial institution or backed by a government; therefore, the monetary policy, inflation rates, and economic process measurements that typically influence the worth of currency do not apply to bitcoin. Contrarily, bitcoin prices are influenced by the subsequent factors-



  • Competition from other cryptocurrencies. E.g. Ethereum, Dogecoin, XRP, etc.
  • Cost at which bitcoin is mined.
  • Regulations that govern the sale of bitcoin.
  • Market supply and demand of bitcoin.
  • The rewards are issued to bitcoin miners for verifying transactions to the blockchain.
  • Internal governance of cryptocurrency.
  • The exchanges it trades on.

Market Supply And Demand of bitcoin

Now let’s talk about the supply and demand economics behind Bitcoin and unlike the fiat currencies that are being used today which have inflation built into them, they lose purchasing power over time. 

  • Bitcoin is based on a monetary policy that’s a lot more like precious metals like gold which has a limited supply similarly, Bitcoin, has a maximum supply of 21 million bitcoins and one can’t counterfeit bitcoins to create more than 21 million.
  • Today there are about seventeen and a half million bitcoins in active circulation.
  • One can think of it like here we have a bowl and, in this bowl, there are the seventeen and a half million bitcoins that have already been mined and we have a faucet draining into this bowl and those represent the new bitcoins that are being mined and entering circulation.
  • Over time this faucet is slowly being turned off and so ultimately there’s a slow drip and then it’s completely off and we’re going to reach.

That point in about a hundred and twenty years from now where there’s going to be no more bitcoins created now let’s take a look at the demand side of things because true scarcity is only created when your limited supply is coupled with increasing demand and the cool thing about cryptocurrencies like bitcoin is that you can measure demand an adoption on the blockchain  

Competition

Bitcoin is believed to be the most popular cryptocurrency, but many other cryptocurrencies in circulation give a tough competition to its fame. Examples of other cryptocurrencies are Dogecoin XRP and Ethereum. The value of an investment is kept in check by these competitors For example, the  Indian Rupee value would have been different if stronger currencies didn’t exist, such as the Yen, Pound.

Bitcoin’s own Internal Governance

Since bitcoin isn’t regulated by one authority, miners are placed on the spot the method transactions and secure the blockchain. If they wanted to tweak or change the software, then it’s to be the choice of the consensus. Because of this, members of the Bitcoin community feel that solving fundamental issues can sometimes take too long, particularly the issue of scalability. 
At this moment, the Bitcoin software is merely ready to process about 3 transactions per second, which is incredibly slow for a way popular it’s. As of now, the community is trying to work out ways to hurry up the number of transactions. Sometimes, when these changes are applied, they become an entirely new cryptocurrency.
Examples of this are Bitcoin Cash and Bitcoin Gold investors then sometimes decide that the new currency isn’t as valuable, resulting in the new currencies not having enough value as bitcoin.

Mining Bitcoin 

The bitcoin protocol allows for the creation of the latest bitcoins at a group rate. As miners process blocks of transactions, new bitcoins are added to the market, and the rate at which new coins are introduced is programmed to slow over time. 

  • Miners secure Bitcoin’s network with computational power, and that they are paid in transaction fees and block rewards.
  • The block reward is that the amount of Bitcoin rewarded for completing a block on the blockchain, which is currently 6.25 Bitcoin per block.
  • These rewards are newly minted bitcoins, and the reward halves every 4 years during what’s called the Bitcoin halving. Bitcoin is about to halve its block reward next in 2024.
  • Electricity cost also affects bitcoin price as miners use a huge amount of electricity for computation power, low electricity price supports and profits the miners.
  • Conversely, if the price of electricity exceeds the worth at which miners can sell bitcoin for a profit, they’re happier not mining in the least.

Why Is Bitcoin Valuable?

Bitcoin is often referred to as digital gold. Just as gold cannot be simply reprinted, neither can Bitcoin. 

  • They both require mining. Gold is mined by a group of people in a dark corner of the earth using heavy machinery to dig up, whereas Bitcoin is mined by a group of people in some dark warehouses using heavy machines to solve complex algorithms for block rewards.
  • Both Bitcoin and gold act as stores of value within their respective ecosystems so what gives gold and Bitcoin value varies counting on your qualifications the maximum amount. People wish to tout gold as a useful resource. They are rarely equivalent people who skill to truly use it as a valuable resource.
  • A bit like the gold bitcoin is simply a social status symbol for the layman, but to the experts, this is often a way different story, gold when within the hands of the proper person can do amazing things than can Bitcoin.
  • Instead of scientists and metallurgists, you’ve got programmers and cryptographers who can use bitcoin’s underlying protocol to make magnificent things like cryptocurrencies while some currencies work purely as a way to replace your bills others do not.
  • You have utility tokens, asset tokens, equity tokens all of these activities in various ways and serve various functions within a company that often has a CEO or prominent figurehead.
  • Bitcoin on the opposite hand like doesn’t have a CEO which suggests that the actions of 1 person or group of individuals cannot impact the bitcoins ecosystem making it a store value.

Could Bitcoin Price Go To Zero?

The question is do we think bitcoin could go to zero says two answers regarding this yes and most likely not. 

  • Bitcoin attempting to get around 40,000 pounds. It’s a major call to pivot and says that bitcoin could go to nothing. The explanation being is there are no resources to back it up, there’s no administration that backs it up and there’s nothing that really prevents it from doing that so that is the primary large concern.
  • The subsequent concern is that as new cryptographic forms of money come out or as the innovation changes, better advanced monetary standards might come out to supplant them.
  • Bitcoin has a ton of utilization it permits one to have the option to move and send reserves universally, one can utilize it for installments it’s a decent method of having another approach to use.
  • One of the sole conceivable situations that would cause bitcoin to collide with zero is being restricted by all world governments, possibly delivering it illicit to have or use, as is as of now the case in a small bunch of nations.
  • This would likewise require bringing down the entire Bitcoin organization, delivering all hubs disconnected, remembering those for space, and making it difficult to arrange new ones.

Hypothetically, this is frequently prepared to make it difficult to move Bitcoin and would forestall underground exchanging, likely delivering Bitcoin useless, yet this is regularly prepared to be almost difficult to achieve

Why is Bitcoin Price Volatile?

Bitcoin has recently earned the title of digital gold but how does this controversial currency establish its calm to fame. 

  • The fact that one bitcoin was worth 4000 pounds in march of 2020 and one bitcoin is now worth more than 28,000 pounds makes it pretty clear to see what all the hype is about so what is bitcoin price Increased 7 full in 9 months?
  • Good question, several global factors impact bitcoins price ranging from economic crises to technological development, variance in currency value, and even pandemics all of these impacts’ bitcoins price in a different way but what is the biggest influence on bitcoins price well the main driver of bitcoins price is consumers speculation and market place comforts.
  • Look at it like this a new investor seeking a bitcoin price has risen and one wants to purchase some before it rises any more so that it when rises one can sell and make a profit in excitement to buy bitcoin this consumer speculation results in an increase in bitcoins market value.
  • Alternatively, when the price of bitcoin starts falling people anticipate a slump and want to sell their bitcoin before the price drops even more and mass selling occurs. The price of bitcoin often falls in parallel due to consumer confidence being on the decline those investors own bitcoin but don’t check the market often enough to see the falling price and want to sell their bitcoin before they make a loss in and in turn the price continues to fall.



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