Tech

How monetary value associated with 1 Bitcoin is determined?

Bitcoin was developed by Satoshi Nakamoto on 3rd January 2009. It is a digital form of currency introduced as an alternative to the paper currency used in the world. All transactions which occur on this network are recorded in a digital ledger and are used to prove ownership of every bitcoin.

Buying or selling bitcoin is not the same as buying a stock as bitcoin is not business. It is not governed by any central bank or government which means its value doesn’t depend on inflation in a country, bank rate, GDP, or any other factor which can devalue a currency.

Bitcoin price is influenced by factors like supply and demand of the bitcoins in the market, cost of the mining process & rewards given to the miners after verification of a transaction on the network, other competitors cryptocurrency prices are some of the factors that determine the price of a bitcoin.

Let’s discuss some of the factors in details:

Supply and Demand of Bitcoins: Bitcoins can only be mined (when someone does any transaction on the network the programmer which decodes will get a reward in terms of bitcoins) or you can buy them there is no other way. There is only a fixed number of bitcoins that can be produced and till now more than Eighty-Five (85 %) percent of bitcoins have been mined so far. This means that the supply of bitcoins soon is going to be less. In 2016, 6.9 percent have been mined, 2017 4.4 percent and 2018 only 4 percent of bitcoins have been mined. These percentages are enough to emphasize that the growth of mining of new bitcoins is reducing every year while the demand for cryptocurrency is increasing as investors and individuals are realizing the potential of the bitcoins more investments are coming in due to which cryptocurrencies have more volatility.

Competition in the Cryptocurrency market: Competition in digital currency hugely affects the price of the bitcoins. But other currencies like Ripple, Ethereum, Bit cash provide a new opportunity for the investors. Also, there are other new digital currencies introduced in the crypto market which attract investors and in turn decrease or increase the price of the Bitcoin. Since Bitcoin is the oldest and most popular cryptocurrency the impact of a new digital currency is less than overall other currencies in the market.

Cost of Mining or Production cost: There are only 21 million Bitcoins and more than 85 percent have been mined so far. To mine a bitcoin, one has to incur costs like electricity, computers to solve the mathematical problem required to decode for a transaction to complete and in turn rewarded by the system in terms of bitcoins. As more and more miners are setting up mining facilities around the world which in turn results in the network making mathematical problems associated with the transaction more complicated and requiring more sophisticated equipment and more electricity to solve a problem.

These are some major factors that affect the price of bitcoin. There are other factors too but they don’t have any major impact on the pricing as these do. If you are interested in trading or investing in bitcoin, you can use bitcoin trading app, check it out

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Published by
Barry Lachey

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