[SOLVED] What gives a Bitcoin its value?

ManOfArc

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I wasn't sure where on the forum to ask this question, so I chose networking pretty much at random. If this is a mistake, please point me in the correct direction.

To begin with, I'm ignorant as heck about cryptocurrency, so I have been doing a little online reading hoping to clear my head on the subject. Not working too well. I have been curious about where the Bitcoin gets its value. It's obviously not based on any commodity. A machine performs massive numbers of calculations and the owner is 'presented' with a Bitcoin or part of one. As of recently one Bitcoin had a value of ~$49, 000 US dollars.

I also read that Bitcoin mining today uses more electrical power than all of Argentina. Not exactly an energy conservative process if one cares about that sort of thing.

Why? Who pays out $49K for this imaginary Bitcoin? Or can it not be converted to normal currency?
See? I'm lost.
 
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Who pays out $49K for this imaginary Bitcoin? Or can it not be converted to normal currency?
See? I'm lost.
imo, suckers, lol. It can be converted to regular currency, but the crux of it comes down to this--if a paper currency's demand dropped to zero, it would still be worth something because of what is 'backing' the currency (usually a nation-state). But these crytocurrancies have no such backing, and tout that as their 'strength'. So if the demand drops to zero, so will the value--there is nothing protecting a freefall other than demand.

And as far as merchants accepting payments, well, the issue with that is with the value of these fluctuating so much, the merchant can actually lose money by accepting a currency that can drop in value overnight, hence most merchants (and the commerce markets in general) stay far away from it.

As of right now cryptocurrancies at best are a solution looking for a problem. And at their worst, are playgrounds for scammers to pull pump and dump scenarios to make themselves rich and others poor.
 

USAFRet

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2 ways of doing things with cryptocurrency. Of which Bitcoin is only one of many.

  1. Invest in it, mostly like the stock exchange. Buy low and sell high.
  2. Mining on your own. Causing your PC to perform extensive math calculation to generate a coin, or some fraction of. This goes into the general coin group. King of like printing money.
Its basic "value" is based on faith. If I buy or generate something worth $100 today...at some point in the future it will be worth $150.
Worth is based on what someone else will pay for it.

If you're wanting to run your PC at home to mine, this is a small example of your competition.
 

ManOfArc

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2 ways of doing things with cryptocurrency. Of which Bitcoin is only one of many.

  1. Invest in it, mostly like the stock exchange. Buy low and sell high.
  2. Mining on your own. Causing your PC to perform extensive math calculation to generate a coin, or some fraction of. This goes into the general coin group. King of like printing money.
Its basic "value" is based on faith. If I buy or generate something worth $100 today...at some point in the future it will be worth $150.
Worth is based on what someone else will pay for it.

If you're wanting to run your PC at home to mine, this is a small example of your competition.
Ha Ha. Yeah, gave that thought up when I checked out some of the professional mining operations going on. Another example.
No, I'm just trying to understand it since I see more and more retailers offering pay by Bitcoin. Even dropping PayPal in place of Bitcoin.
 

kanewolf

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Crypto currency is no different than paper currency. It has "value" because it can be exchanged for commodities. Also, like paper currency, the value can change compared to the US dollar. The $40,000+ "value" is an exchange rate, just like the Euro has an exchange rate.
 
Who pays out $49K for this imaginary Bitcoin? Or can it not be converted to normal currency?
See? I'm lost.
imo, suckers, lol. It can be converted to regular currency, but the crux of it comes down to this--if a paper currency's demand dropped to zero, it would still be worth something because of what is 'backing' the currency (usually a nation-state). But these crytocurrancies have no such backing, and tout that as their 'strength'. So if the demand drops to zero, so will the value--there is nothing protecting a freefall other than demand.

And as far as merchants accepting payments, well, the issue with that is with the value of these fluctuating so much, the merchant can actually lose money by accepting a currency that can drop in value overnight, hence most merchants (and the commerce markets in general) stay far away from it.

As of right now cryptocurrancies at best are a solution looking for a problem. And at their worst, are playgrounds for scammers to pull pump and dump scenarios to make themselves rich and others poor.
 

ManOfArc

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Jul 8, 2017
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imo, suckers, lol. It can be converted to regular currency, but the crux of it comes down to this--if a paper currency's demand dropped to zero, it would still be worth something because of what is 'backing' the currency (usually a nation-state). But these crytocurrancies have no such backing, and tout that as their 'strength'. So if the demand drops to zero, so will the value--there is nothing protecting a freefall other than demand.

And as far as merchants accepting payments, well, the issue with that is with the value of these fluctuating so much, the merchant can actually lose money by accepting a currency that can drop in value overnight, hence most merchants (and the commerce markets in general) stay far away from it.

As of right now cryptocurrancies at best are a solution looking for a problem. And at their worst, are playgrounds for scammers to pull pump and dump scenarios to make themselves rich and others poor.
I'm beginning to get that same idea. Bitcoin is not based on anything substantial like precious (rare) metals or the nation state itself. That's why I was comparing it to stocks. Admittedly, not a good comparison now that I think about it.
 
Stocks have an underlying value in a fractional ownership of a company.

Cryptocurrency is more akin to a Ponzi scheme.
Those that get in early make lots of money so long as they cash out before the bubble bursts.

Currencies printed by nations no longer are truly backed by hard assets such as gold.
But, they have one real value in that they are required to be accepted for legal transactions.

Considering the enormous waste of electricity to generate crypto currency,
I can foresee a Government banning the use of such for Legal transactions.
 
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hang-the-9

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I'm beginning to get that same idea. Bitcoin is not based on anything substantial like precious (rare) metals or the nation state itself. That's why I was comparing it to stocks. Admittedly, not a good comparison now that I think about it.
Stocks are based on company value. Bitcoin and the rest are more like baseball cards or anything else "collectable". It's just a cardboard piece with a specific picture on it, not worth anything on it's own, but people want it because of some feeling of rare = valuable. At least art and baseball cards can have some historic and cultural value, virtual currencies are just rare numbers that people find.
 
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bitcoin has value because it has a use. it is exchanged for a commodity just like paper money issued by a government. the difference is it is unregulated and therefore lacks "validity" as a true currency. however, they way people are using it makes it a currency in the same sense of the word.

it's appeal to many is the lack of regulation and oversight. no one really knows who owns what amount and where it is and what they are doing with it vs how much attention is payed to a countries currency. cash is tracked all over the world through the banks and it is not very easy to move large amounts of cash and avoid gov scrutiny. with bitcoin, you simply convert your cash to bitcoin, put the wallet on a thumb drive or other protable storage and then go wherever you plan to go. no customs, taxes and so on for carrying a bag full of cash or trying to transfer a bunch by bank to another country. when you get where you're going, sell some bitcoin for local currency and go about your life.

of course it's also used for illegal transactions since it is hard to track who had and got the bitcoin.

really anything has "value" to someone, but not necessarily everyone. people buy paintings/cars/jewels/houses/etc etc for millions of dollars, yet for me, they are worth little to nothing. bitcoin is no different as some value it highly and others give it no value. but just because you don't value it, does not automatically make it worthless to everyone.

you can mine it yourself and sell it as you get it to make money as many are. or you can buy and sell the coin itself from one of the many brokers out there. like any other commodity, it goes up and down in price and can make or lose you money. keep in mind folks have been predicting the death of bitcoin for many years now and it is still going up in value. it was nearly worthless for a long time and we used to hand em out all the time for stupid stuff. we'd offer 10 of em for helping answer a question and other silly stuff as it had literally no value. then all of a sudden you could buy maybe 20 for $1 and so on. when they hit $10 each, i dumped all mine figuring they'd never hold that price and was done with it. think i had about ~3000 of them at one point and laughed all the way to the bank when i sold them for around $10 each. man do i wish i had held onto them!!! lol
 

ManOfArc

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Thanks to all of you for your advice and helping me understand. Hard to pick a best answer, but I'll try. They are all best answers.

Still sounds to me like it may be a modern cyber version of a get-rich-quick scheme. Get in, get rich, get out.
 
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the real get rich quick n get out piece comes when someone creates a new one of these currencies. they create it from nothing, give themselves a bunch of it to start with and wait for the value to go up and sell. they're really the ones taking advantage of the system.

we may not like it, but the ones who are putting a lot of money into a mining farm are the ones who can be said to be putting in the "work" of the system. it is not cheap to get hundreds of gpu's and all that goes with running the farm. they are not really making money from nothing like some seem to think. sure they profit but there is a lot of cost associated with running the farm that has to be covered off the top.
 
I learned about this recently. This graph even looks the same!


...the ones who are putting a lot of money into a mining farm are the ones who can be said to be putting in the "work" of the system. it is not cheap to get hundreds of gpu's and all that goes with running the farm. they are not really making money from nothing like some seem to think. sure they profit but there is a lot of cost associated with running the farm that has to be covered off the top.
Yes, it isn't cheap, and I still don't see how the returns are worth all that effort. You can make double digit gains in a day playing with options. :unsure: Even a millionaire working a job doesn't make sense. I've run the numbers on this and someone making just 5% on $1M has enough to just pay rent and their car payment for the rest of their life--why do millionaires work? I know I'm not going to!! LOL!
 

Math Geek

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I learned about this recently. This graph even looks the same!


Yes, it isn't cheap, and I still don't see how the returns are worth all that effort. You can make double digit gains in a day playing with options. :unsure: Even a millionaire working a job doesn't make sense. I've run the numbers on this and someone making just 5% on $1M has enough to just pay rent and their car payment for the rest of their life--why do millionaires work? I know I'm not going to!! LOL!
why would it not be worth it? you get more out than you put in. that's pretty much the goal isn't it? seems like you are trying to project your lack of desire to do it onto everyone else. again you don't have to like it or want to do it, but you can't deny that it is worth the effort. the idea of any enterprise is to profit from it and there is plenty of profit in mass scale mining to justify it. we're not talking about $20 a month here, but thousands per month.

as for as to why a millionaire works has a lot to do with why they are millionaires in the first place. those go getter types don't like to sit around and are always looking for something to do. they might not work 40 hrs a week at mcdonalds, but they are usually on the lookout for a new way to earn. a fact of the wealthy that has been talked about over and over is the fact that, they are not where they are through one avenue. they have money everywhere working for them in many ways. true they may have got their start with one good job, but they took that extra money and started making it work for them. 5% sounds great but no one is making that kind of interest right now from a basic bank account. you can invest it and make that and some but then that's just "working" again as that takes time and effort to invest and succeed.

it's hard sometimes but when considering these types of things you need to consider other angles and not just the one you're looking at. no one makes money for free, something is put in, whether it is time and effort or paying someone else for their time to make money for you. in the end there is no something for nothing
 
Jun 1, 2021
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Thanks to all of you for your advice and helping me understand. Hard to pick a best answer, but I'll try. They are all best answers.

Still sounds to me like it may be a modern cyber version of a get-rich-quick scheme. Get in, get rich, get out.
nah I don't think so. actually it's the direct opposite of a get-rich-quick-scheme because when you try to invest in bitcoin with the intention of getting money as early as possible you'll end up disappointed, honestly.
 
They didn't become rich by thinking 'eh, that's enough' that's why they keep working.
Actually, there's a lot of motivations, but for the ones who are motivated by thinking 'that's not enough' there will never be enough. This is the problem with a lot of millionaires--that lack of defined goals. (This is typically NOT the case for millionaires who earned it from scratch though.) And the same problem of the lack of defined goal is what hurts cryptocurrency investors with 'to the moon' ideologies...
 
why would it not be worth it? you get more out than you put in. that's pretty much the goal isn't it? seems like you are trying to project your lack of desire to do it onto everyone else. again you don't have to like it or want to do it, but you can't deny that it is worth the effort. the idea of any enterprise is to profit from it and there is plenty of profit in mass scale mining to justify it. we're not talking about $20 a month here, but thousands per month.

as for as to why a millionaire works has a lot to do with why they are millionaires in the first place. those go getter types don't like to sit around and are always looking for something to do. they might not work 40 hrs a week at mcdonalds, but they are usually on the lookout for a new way to earn. a fact of the wealthy that has been talked about over and over is the fact that, they are not where they are through one avenue. they have money everywhere working for them in many ways. true they may have got their start with one good job, but they took that extra money and started making it work for them. 5% sounds great but no one is making that kind of interest right now from a basic bank account. you can invest it and make that and some but then that's just "working" again as that takes time and effort to invest and succeed.

it's hard sometimes but when considering these types of things you need to consider other angles and not just the one you're looking at. no one makes money for free, something is put in, whether it is time and effort or paying someone else for their time to make money for you. in the end there is no something for nothing
In hindsight, the perfect timing of every investment is 'worth it'. But on the front side where an investment has a high risk to pay out zero versus one that will bring some return, it's just gambling. Absolutely not worth the effort when an investment in MSFT a year ago is up 30% today--there's much safer places to play--even Las Vegas. ;)

The problem with mining is the resulting commodity may end up being worth less than the capital and the work that went into creating said commodity. Now, this can even happen for something like coal or gold, but because there are REAL physical (and legal) markets that use these commodities, they're a real investment. To create a commodity whose only real use as of right now is to pay criminals for ransomware extortion payments and other illegal exchanges of goods or cash is not something the world needs more of.

Are you millionaire? Do you know any? I'm genuinely curious.
 
Jun 1, 2021
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Yeah, it's not get rich quick, it's called a ponzi or pyramid scheme. :ROFLMAO:
No. Cryptocurrency investment can’t be called a Ponzi scheme. Ponzi is a form of fraud, and crypto is no fraud. And besides, no one even asks for your money except if you stupidly fall into one of those scammers' traps. I even bought some bitcoins already from https://uphold.com/en/assets/crypto/buy-btc, which I will continue using for my trade. Coming back to the thread's central question, bitcoin gets its value from its growing number of users, in the simplest form of description. And yes, you can convert bitcoin to any hard currency.
 
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kanewolf

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no. crypto investment can't be called a ponzi scheme. ponzi is a form of a fraud and crypto is no fraud
I think some of them could. Someone could create a "new" crypto currency with the intent of "pump and dump".
Crypto has no track record to speak of. Metals, and even paper currency of many countries have a 100+ year history. Crypto has less than 10 and some, like Chia have less than 5 years. There just isn't enough history to determine if they have any fraud or not.
 

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