Bitcoin versus Fiat Money: Why Is Bitcoin So Valuable and What Backs It?

Many people wonder what Bitcoin is so valuable. If you've been following Bitcoin news, you know that the cryptocurrency has experienced a meteoric price rise. And this could have prompted you to wonder why this digital currency has value.

Ideally, Bitcoin gets value from a blockchain ledger. This public ledger contains proof of every transaction that takes place on the Bitcoin network. What's more, Bitcoin supply has a limit that makes it rare, like gold and other precious metals.

A commonly conceived notion that Bitcoin doesn't have value arises because Bitcoin lacks anything physical to back it. A billionaire tycoon, Warren Buffett, has used this idea as the basis for questioning Bitcoin's value. Physical assets support fiat currencies while the blockchain ledger backs Bitcoin.

What Backs Regular Currencies?

Each regular currency has a value that people use to pay for services and goods. But many people don't think about it because the financial system has operated like this for many years. But what gives fiat currency the value that people attach to it?

Initially, people exchanged gold for money, but governments introduced fiat currency without physical backing. Thus, a regular currency functions on people's trust. A financial system requires people's confidence to function correctly. Banks, influential people, and governments affect the current monetary systems. People accept fiat money when unsure that it will maintain its value in the days to come.

People can pay $5 for a loan, and the lender accepts it. That's because people have taken how the system works. But Debt Mountains keep piling up. Eventually, people might have to handle the consequences at some point. Until the emergence of Bitcoin, people didn't have an alternative. Instead, they offered money to get services and goods.

Blockchain Ledger Explained

As hinted, the blockchain ledger backs Bitcoin. And this is the technology that creates the secure network on which Bitcoin operates. Bitcoin's blockchain ledger increases security by using unbreakable, incorruptible, and unchangeable mathematics. Ideally, this technology makes a secure network that operates without human involvement.

Essentially, the blockchain ledger is closed and self-checking. No country, government, or individual controls it. And Satoshi Nakamoto designed it to function that way, making it a complex concept.

Bitcoin's blockchain ledger has mathematical blocks of encrypted information from all Bitcoin transactions. And this is the greatest weakness or strength of this virtual currency. While it's a highly secure virtual guarantee system, some people find it too complex to understand and have confidence in it.

The backing of every Bitcoin transaction is a system of immutable, complex information on high security. And this has protected Bitcoin from hacking for years and will do so for any foreseeable future.

Bitcoin versus Fiat Money

Bitcoin is a non-proprietary and open-source virtual currency, meaning that anybody can investigate, learn, and read about it. People called miners generate new tokens by verifying transactions.

But central banks and governments print and regulate fiat money. That's why regular currencies are more regulated and stable than Bitcoin. But compared to traditional currencies that governments print and function based on people's confidence, Bitcoin has a legitimate entity backing it.

Theoretically, Bitcoin is free from real-world elements like stock markets and government. In contrast, fiat currency depends on these elements to be valuable. That's why the 2008 financial crisis was a significant threat to regular money. And a similar situation can arise again in the future.

Bitcoin's supply is limited, whereas governments decide when to print any amount of conventional money. The limited supply makes Bitcoin valuable than traditional money, like precious metals.

Final Thoughts

People have used this virtual currency to pay for services and goods for over a decade now. Platforms like Bitcoin Prime enable people to get Bitcoin without engaging in its mining process. That's because they allow you to purchase it using fiat money. That's because they have confidence in the blockchain ledger that backs this virtual currency. While Bitcoin hasn't acquired the same confidence level as fiat currency, it's slowly comparing to other mainstream currencies. Thus, people are gradually building confidence in this virtual currency.