SECURITY & PRIVACY
Why Do People Trust Bitcoin?
In the world of cryptocurrency, Bitcoin has come out as the clear winner in terms of value, trust and reliability. While the market for cryptocurrency can still fluctuate dramatically over short spans of time, it is becoming far more stable as the months pass. However, with the rapidly changing nature of Bitcoin prices, it would be reasonable to expect that this type of currency would be quite difficult to trust. The reality, though, is that people are still flocking to Bitcoin as a form of currency for the numerous benefits and investment opportunities that it presents. There are just a few simple reasons that Bitcoin has been able to thrive, and the majority of them are easy enough for almost anyone to understand.
The Value of Bitcoin
The primary value of Bitcoin used to be in its anonymity. It was often considered a “black market” currency, because in the initial stages, it was a very favorable currency for darker transactions that are better left unmentioned. However, as time progressed, more normal transactions became a part of the ebb and flow of the currency. This stimulated advanced demand and more online shops started to accept Bitcoin. A snowball effect was created, and demand gradually grew for online and even physical stores to start accepting the currency.
With the increased demand of Bitcoin, prices naturally started to rise and stabilize. While the average investor can clearly see that the price of Bitcoin has never been truly “stable,” there are investors that have profited from understanding the way the currency changes in price. In other words, simply buying and selling Bitcoin can be a tool for financial gains, so the idea that its price is too unstable is not an entirely valid argument for withdrawing trust for the currency. Once these facts are presented to someone that does not use Bitcoin, it becomes easier for them to recognize that the value of the coin can be at least moderately trusted.
Trusting in Cryptocurrency
The biggest issue with developing trust in a currency is that the prices cannot change dramatically and quickly. While Bitcoin’s price changes are far more stable these days, the old stigma lives on, and some people still believe that prices could go off the rails at any moment. However, there are several market forces that are keeping the currency relatively stable, and most of them are fundamental aspects of finance.
Whenever the price of Bitcoin rises, there is a market force that wants it to cost less. This is stimulated by people “selling” their Bitcoin, which is actually just technically a currency exchange rather than a sale. When the price drops, there is the market force of people “buying” Bitcoin that drives the price back up. This constant tug-of-war between buying and selling drives an average price, average growth and average extremes. For example, while a single Bitcoin might rise and fall in value by 5% during the week, it often returns right back to where it began within short order. It might be a little higher or lower in value later, but the price is often relatively close.
Bitcoin and Reliability
There is one single, salient fact about Bitcoin that is keeping it from sinking entirely: The demand is constantly rising. Due to the way that Bitcoin are distributed, there are far less coins entering the economy now than ever before. On top of this fact, more stores are still incorporating the ability to pay with Bitcoin, and people all over the world are investing in the currency. This means that more people want the coin and are using the coin, which will constantly and consistently drive the value of the currency upward.
This creates a reliable scenario where the long-term price of Bitcoin should be constantly rising. Over time, demand will rise and supply will drop, and these are certain facts given the context and trends of the currency. In the meantime, short-term investors can make quick gains from the chaotic ups and downs that transpire during the week. This is the primary mechanism that is driving trust in Bitcoin: So long as demand continues to rise while the supply of new currency continues to shrink, the old currency will continue to gradually rise in value proportionally to the increases in demand.
Most financial institutions hold opinions of Bitcoin that are based on the last few years of information, rather than what has been happening in the last year or two. Opinions on Bitcoin are often skewed by people that know nothing about them, and most of the negative information available comes from either rookies or people that don’t know much about the subject. The fact of the matter is that this currency is here to stay, it’s growing in demand by the day and the circumstances surrounding it will continue to drive interest for businesses. While there’s still always the risk that the prices hop wildly, it will most likely just return to a more reasonable price within short order. And that’s exactly why people trust Bitcoin.