Bitcoin is Scarce and Has Utility—Reasons To Mine
Very often, we miss answers right in front of us.
Bitcoin is the subject of fascination and scrutiny. Some try to ascribe a unique meaning to this innovation to explain its spectacular rise.
Such analysts would be dismayed to know that this asset is more transparent than cash and relies on straightforward dynamics. The fact that Bitcoin does not have the name recognition of the dollar should not make it automatically second-class.
Just like cash, Bitcoin is as valuable as its collective community deems it to be. It is reliant on their confidence and continual usage. However, there is one significant distinction between the two.
Value From Scarcity
Several economists have tried to point out why Bitcoin has value. They often overanalyze the boom and bust cycles and trader behavior in the process. This task is all about spectacle, and substance can slip between the cracks.
The answer to why Bitcoin has value is straightforward.
It is useful and scarce.
These factors may not sound like much until you think about the fundamental reason why anything has value. Think of the universal symbol for value through millennia: gold. What does gold have that few other metals do?
It is rare and hence valuable.
Only the elite in society had gold for decades. This quality gave it value, and many aspired to have this status symbol. Gold deposits are rare and sometimes need people to dig significant distances below the ground to find some. The same goes for Diamond and other precious metals. These assets gain status from their rarity.
Coming back to Bitcoin, there are only 21 million Bitcoins in existence. This number seemed like a lot in the beginning. However, as soon as Bitcoin got famous, it became an increasingly smaller amount relative to the number of community members.
Hence, Bitcoin quickly earned the nickname of digital gold. It is a unique store of value that relies on its relative scarcity and finite amount to preserve value.
Fiat Has Betrayed Its Founding Ideals
Paper money initially came about as a rigid concept. It was a more convenient way to trade, with the understanding that each unit of currency had its value backed by gold or precious metals. In the times of the Romans, each coin was a metal engraved with the emperor’s face.
There was a gradual evolution through the centuries, with the introduction of paper money coming along the way. Regardless, countries like the U.S. maintained what was called a “gold standard.” This provision meant that the government could only print money relative to the gold it held in reserve.
Then something unfortunate began to happen. Countries started to print money by decree (fiat) without regard to their actual gold reserves. The U.S. eliminated the gold reserve in the 70s during the Nixon administration, and things have only gone South on matters of monetary integrity.
From then, the government began printing money arbitrarily. The worst displays of this arbitrariness have been the past ten decades. After the economic crash of 2009, America printed its way out of the crisis with multiple waves of quantitative easing.
During the COVID-19 crisis, the Federal government printed trillions of dollars to kick-start the economy. This printing rate is unsustainable because every time there is a fiscal crisis, the default answer is to set loose the printers.
Therefore, the world is printing value out of existing monetary systems. Sure, some may dismiss these concerns as alarmism and will not care an inch. The extreme examples of countries like Venezuela and Zimbabwe may sound distant, but they are still relevant.
Inflation Is Unmistakable
One inescapable thing is the gradual inflationary rise in recent decades. You often come across phrases like “adjusted for inflation” and think little of them. However, these are critical indicators of what has happened in recent decades.
The inflationary pressures in the modern economy are real. That is the direct consequence of the constant printing of money. The USD today is not backed by real value and is an arbitrary paper that only has the confidence of the public to hold it up.
The U.S. now has a higher public debt than GDP. The two figures are not likely to change positions soon, and there is only one way for the USD. It may take years, even decades, to show. However, the outcome is entirely predictable.
Therefore, there is no point in storing value in fiat money. There is always a need to find assets resistant to inflationary pressures, such as real estate and other related assets. Real estate itself can have tumultuous times when its value is pegged on the dollar. Incidentally, the real estate sector was at the heart of the economic crash of 2009.
Bitcoin Is Resistant to Inflation
This statement may sound ironic given the tumultuous roller-coaster ride that is Bitcoin prices. However, it is vital to make a distinction between volatility and inflation.
Bitcoin was one of the best-performing assets of the 21st century. It gained value gradually over the USD and is effectively digital gold today.
This cryptocurrency has found multiple uses in real life. More merchants are integrating it into their payment systems and allowing greater crypto commerce because this currency is increasing its presence in ordinary life.
Bitcoin developers are finding innovative solutions to ensure that it remains relevant to payments even as its value crystallizes. Solutions like the Lightning Network (LN) help improve transaction speeds and efficiency. Such utility represents the innovative power of a concerted community determined to make it work.
Regardless, the Bitcoin supply remains fixed. This fact is crucial because it follows the natural laws of supply and demand without fault. No Central Bank can decide to release billions of Bitcoin overnight and dilute its value in the process. Such is the beauty of this asset. Gold works in similar ways because no one can unilaterally decide to create gold out of thin air.
All The More Reason to Mine Bitcoin
Mining is how new Bitcoin enters into circulation. Bitcoin mining ensures that the creation of new Bitcoin is systematic and consistent.
Additionally, it serves the vital purpose of securing the Bitcoin network by preventing double-spend.
Bitcoin does not have a centralized entity that supervises transactions. Therefore, there is a need to have a mechanism to confirm Bitcoin transactions without sacrificing decentralization.
Ultimately, the incentive for mining Bitcoin is its scarcity and resistance to inflation. Mining this asset means that you are earning something that is going against the grain. Its trajectory has been impressive in its first decade and will likely continue in that direction.
VBit Mining is a champion of this asset. We have a team that thrives in this sector because we have been enthusiasts from the very beginning. VBit Mining has offered mining equipment reselling services since 2018 and the additional benefit of hosted mining.
Our direct line to Bitmain allows us to source high-quality equipment for those who intend to start mining. This process is technical and requires suitable conditions to operate viably.
Accordingly, our hosted mining services ensure that miners can mine in an environment with cheap renewable electricity and natural cooling. These factors make Bitcoin mining more viable and logistically possible.
Visit VBit Mining Shop to learn more about Bitcoin mining!