The value, significance and belief of bitcoin

After a long time of speculation, I always want to have a few bitcoins, because the more I finally found out that the king of coins still has its unique charm, and it feels like having a belief.

For investors, one of the outstanding facts of the invention of bitcoin system is that it has created a new kind of scarce digital commodity - bitcoin. Bitcoin is a transferable digital token, and the process of creating it on the bitcoin network is called "mining". Bitcoin mining is roughly similar to gold mining, except that its production follows a designed and predictable schedule. Only 21 million bitcoins are designed to be mined, most of them already._DJMINER

However, bitcoin does not have any real commodity endorsement and is not guaranteed by any government or company, which raises an obvious question for new bitcoin investors: why is bitcoin valuable? Unlike commodities such as stocks, bonds, real estate, and even oil and wheat, bitcoin cannot be valued by standard discounted cash flow analysis or by the need to produce higher-order goods. Bitcoin belongs to a completely different category of goods, known as monetary goods. Its value is set by game theory, that is, each market participant's valuation of goods is based on how they evaluate other participants. So what are the characteristics of bitcoin that fascinate so many people?

The attribute of good value storage. When value storage competes with each other, the specific attribute of a good value storage makes a certain value storage stand out on the margin, and increases the demand for it as time goes on. Although many goods are used for value storage or "original currency", there are some special properties that are needed, and the goods with these properties will surpass other goods.

For example, portability: bitcoin is the most portable value store in human history. The private key representing hundreds of millions of dollars can be stored in a small U disk and easily carried anywhere. In addition, money of the same value can be transferred instantly between people at both ends of the earth. French coins are basically digital and very portable. However, government regulation and capital control mean that a large amount of value transfer usually takes several days, or even is impossible at all. Cash can be used to avoid capital controls, but subsequent storage risks and transport costs become significant. The density of physical gold is very high, which is the least portable so far. There is no doubt that most gold bars have never been transported. When gold bars are transferred between the buyer and the seller, they usually only transfer the ownership of gold, not the physical gold bars themselves. Long distance transportation of physical gold is expensive, dangerous and time-consuming._DJMINER

For example, interchangeability: gold provides the standard of interchangeability. When it melts, one ounce of gold is essentially indistinguishable from another, and gold has been traded in the market in this way. On the other hand, only the currency allowed by the issuing institution can be exchangeable. Although merchants who accept legal bills usually treat each bill the same, in some cases large bills are handled differently from small bills. For example, when the Indian government tried to destroy India's untaxed grey market, its 500 rupee and 1000 rupee banknotes were completely non monetized. This non monetization allowed the 500 and 1000 rupees notes to be traded at a price lower than their face value, which made them no longer truly interchangeable with their lower face value notes. Bitcoin is interchangeable at the network level, which means that each bitcoin is the same at the time of transmission. However, because bitcoin is traceable on the blockchain, certain bitcoin may be polluted due to its use in illegal trade, and businesses or exchanges may be forced to not accept the polluted bitcoin. If we don't improve the privacy and anonymity of bitcoin's network protocol, we can't think that bitcoin is as interchangeable as gold.

Another example is verifiability: Generally speaking, it is relatively easy to verify the authenticity of French currency and gold. However, despite the function of preventing counterfeiting in their banknotes, countries and their citizens still face the possibility of being cheated by counterfeit banknotes. Gold is not immune from forgery. Sophisticated criminals use gold-plated tungsten to trick gold investors into buying fake gold. Bitcoin, on the other hand, can be tested with mathematical certainty. With an encrypted signature, the owner of bitcoin can publicly prove that he owns what he calls bitcoin._DJMINER