Bitcoin Profit reported this review for breaching of Trustpilot guidelines. We are currently assessing the review in accordance with our reporting processes. Bogdan Ciprian 8 reviews. Praesent nec erat convallis Lorem ipsum dolor sit amet, consectetur adipiscing elit. Bitcoin Profit reported this review for breaching of Trustpilot guidelines. /5(5). Dec 07,  · But if I use bitcoin to buy $25 worth of socks on Overstock today, and the price of bitcoin quadruples next week, I'll feel like those socks actually cost me $ Then again, if bitcoin crashes. Nov 18,  · In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin. There will eventually come a time when Bitcoin .

Where does bitcoin profits come from

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Nothing needs to back them just like nothing backs gold. The primary purpose of a backing is to ensure scarcity. But the block generation algorithm does that for Bitcoins. Bitcoins are just ledger entries. Like all modern currencies they are not backed by anything, but have value based only on their usefulness and their supply. The addition of bitcoins into the money supply is controlled by the bitcoin software and is limited to a pre determined amount and rate of distribution.

The reason mining causes new bitcoins to be created is two-fold. On the one hand it's a mechanism to introduce bitcoins into the money supply that is controllable and essentially random like winning little lotteries.

On the other hand it motivates people to run the mining software which helps to secure the entire system. From my research the best short answer is that they have use value as a medium of value exchange. Their use value comes from having properties of gold limited supply , and digitally transferable over the internet so can be called digital cash.

There is no central authority, so you can trust the wisdom of the crowd. Another good described is a digital distributed notary system. Like fiat money, the valuation of BitCoin stems from its changing share per unit of world GDP transacting in it - the share of world economic activity expected to transact in BitCoin vs.

The CPI or purchasing power valuation of fiat money is clearly determined by its supply relationship to real GDP wherein excess money vs.

Figure 1: U. CPI latest date for M3 available data from Fed. A broader measure would look at the world stock of dollars vs. This can be done for gold during the pure world gold standard. World CPI relationship demonstrates this in Figure 2. This article does not deal with the effects of political agendas as they may aid or impede transactions in BitCoin or technical issues relating to the security of either BitCoins themselves or the code generating them; but rather strictly with the economics of BitCoin valuation.

The former most certainly can in a moment remove large swaths of GDP from BitCoin transaction and thus move its price in relation to the share of GDP change — as China recently did. The U.

The fundamental economic differences are that the growth rate of the stock of gold and BitCoin the latter having a finite future maximum quantity are less than the growth rate of world real GDP and are thus deflationary inherently grow in purchasing power. Some may question this assertion about gold in view of its historic price swings and may choose to read my Seeking Alpha articles on gold and published academic journal papers to see why.

BitCoin has a further economic distinction from both fiat money and gold: its global acceptance curve as a medium of exchange is just beginning.

Thus, its price is mostly a function of the share of world GDP accepting it in relation to supply. Fait money and gold in contrast have reached acceptance maturity. Of course, by the time the maximum is reached, world GDP is likely to be much greater and the transaction share may be greater. While there are other factors affecting the valuation of BitCoin, which factors also affect the price of gold, they are minor in relation to its global acceptance growth curve.

Those other factors include the real yield, fiat exchange rates, the expected world inflation rate and the cumulative world inflation rate. Other digital currencies may affect BitCoin valuation to the extent they compete for world transactional acceptance by offering attributes such as superior technical, security and transactional ease features or compliance with regulatory requirements. Although a simple question, "What gives Bitcoin value?

The value of a Bitcoin is derived from the total value of the Bitcoin used for storage of wealth SW plus the total amount of the Bitcoin required for concurrently transacting in it TX. The sum of these two numbers divided by the amount of Bitcoins in circulation BC currently Remember, this leaves out the TX component, which will further increase the price of Bitcoin.

Over time, funds will shift from other asset classes being used for wealth storage to Bitcoin. There are many advantages to storing wealth in Bitcoin as opposed to specifically gold, for example, as you can divide Bitcoin into very tiny pieces difficult with gold and you can send Bitcoin to someone on the other side of the planet within minutes impossible with physical gold.

These use cases illustrate why Bitcoin is a good alternative for gold and other assets for storage of wealth. For example, if it becomes common place for real-estate purchase payments to be processed via Bitcoin, then the amount of value in Bitcoin required to allow this to happen will need to be as large as the current working set of real estate transactions in progress.

This logic applies to online sales and brick and mortar sales. SW and TX will both change as time passes. Therefore to more accurately predict the price of Bitcoin, you need to estimate these two components for a given time, and then divide by the number of Bitcoins in circulation.

BC can easily be obtained from many websites and is updated live. Bitcoin works well as a storage of value and for financial transactions, therefore it will often be used as a substitute for both currency as well as common wealth storage assets e.

Bitcoins utility global register — the block chain is what makes this possible. The worth of Bitcoin comes into play because of this utility, wealth storage and transactions will happen ontop of this platform. And using the formula above, the price of Bitcoin PB can be computed by estimates of these two quantities. In this hypothetical example has every American It implies:. It means that median saving amount of people is only 0. It includes babies and poor people in Africa, India..

With three different unreal hypothesis and very simple estimate and we can get three different prices. The question is not very well worded, but I this article is the best response to the question of "What backs Bitcoins? Sign up to join this community. The best answers are voted up and rise to the top. Where do bitcoins come from and what gives them their value? Ask Question. Asked 9 years, 3 months ago. Active 8 months ago. Viewed 84k times.

Jonah There will only ever be around 21 million Bitcoins. Right now, there are fewer than that. The mined Bitcoins come from the mining process. Bitcoins are basically just numbers and the process of mining is the process of generating numbers. What gives the Mona Lisa value? What gives your house value?

To assess Bitcoin's value as a currency, we'll compare it against fiat currencies in each of the above categories. When Bitcoin was launched in , its developer s stipulated in the protocol that the supply of tokens would be capped at 21 million. Note that changing the protocol would require the concurrence of a majority of the computing power engaged in Bitcoin mining , meaning that it is unlikely.

The approach to supply that Bitcoin has adopted is different from most fiat currencies. The global fiat money supply is often thought of as broken into different buckets, M0, M1 , M2 , and M3. M1 is M0 plus demand deposits like checking accounts.

M2 is M1 plus savings accounts and small time deposits known as certificates of deposit in the United States. M3 is M2 plus large time deposits and money market funds. Since M0 and M1 are readily accessible for use in commerce, we will consider these two buckets as medium of exchange, whereas M2 and M3 will be considered as money being used as a store of value. As part of their monetary policy, most governments maintain some flexible control over the supply of currency in circulation, making adjustments depending upon economic factors.

This is not the case with Bitcoin. So far, the continued availability of more tokens to be generated has encouraged a robust mining community, though this is liable to change significantly as the limit of 21 million coins is approached. What exactly will happen at that time is difficult to say; an analogy would be to imagine the U. Fortunately, the last Bitcoin is not scheduled to be mined until around the year This can be seen with precious metals like gold.

Fortunately, Bitcoin is divisible up to 8 decimal points. This allows for quadrillions of individual units of Satoshis to be distributed throughout a global economy. One bitcoin has a much larger degree of divisibility than the U. While the U. It is this extreme divisibility which makes bitcoin's scarcity possible; if bitcoin continues to gain in price over time, users with tiny fractions of a single bitcoin can still take part in everyday transactions. One of the biggest selling points of Bitcoin has been its use of blockchain technology.

Blockchain is a distributed ledger system that is decentralized and trustless, meaning that no parties participating in the Bitcoin market need to establish trust in one another in order for the system to work properly. This is possible thanks to an elaborate system of checks and verifications which is central to the maintenance of the ledger and to the mining of new Bitcoins.

Best of all, the flexibility of blockchain technology means that it has utility outside of the cryptocurrency space as well. Thanks to cryptocurrency exchanges, wallets, and other tools, Bitcoin is transferable between parties within minutes, regardless of the size of the transaction with very low costs. The process of transferring money in the current system can take days at a time and have fees. Transferability is a hugely important aspect of any currency.

While it takes vast amounts of electricity to mine Bitcoin, maintain the blockchain, and process digital transactions, individuals do not typically hold any physical representation of Bitcoin in the process.

Durability is a major issue for fiat currencies in their physical form. A dollar bill, while sturdy, can still be torn, burned, or otherwise rendered unusable. Digital forms of payment are not susceptible to these physical harms in the same way.

For this reason, bitcoin is tremendously valuable. It cannot be destroyed in the same way that a dollar bill could be. That's not to say, however, that bitcoin cannot be lost.

If a user loses his or her cryptographic key, the bitcoins in the corresponding wallet may be effectively unusable on a permanent basis. Thanks to the complicated, decentralized blockchain ledger system, bitcoin is incredibly difficult to counterfeit. Doing so would essentially require confusing all participants in the Bitcoin network, no small feat.

The only way that one would be able to create a counterfeit bitcoin would be by executing what is known as a double spend.

This refers to a situation in which a user "spends" or transfers the same bitcoin in two or more separate settings, effectively creating a duplicate record.

While this is not a problem with a fiat currency note—it is impossible to spend the same dollar bill in two or more separate transactions—it is theoretically possible with digital currencies. What makes a double spend unlikely, though, is the size of the Bitcoin network. By controlling a majority of all network power, this group could dominate the remainder of the network to falsify records.

However, such an attack on Bitcoin would require an overwhelming amount of effort, money, and computing power, thereby rendering the possibility extremely unlikely. Generally, Bitcoin holds up fairly well in the above categories when compared against fiat currencies. So what are the challenges facing Bitcoin as a currency?

One of the biggest issues is Bitcoin's status as a store of value. Bitcoin's utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if Bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value.

Like fiat currencies, Bitcoin is not backed by any physical commodity or precious metal. Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and a craze of media attention. This is likely to decline as Bitcoin continues to see greater mainstream adoption, but the future is uncertain.

Bitcoin's utility and transferability are challenged by difficulties surrounding the cryptocurrency storage and exchange spaces. In recent years, digital currency exchanges have been plagued by hacks, thefts and fraud. In those cases, however, regulation is much more settled, providing somewhat more straightforward means of redress. Bitcoin and cryptocurrencies more broadly are still viewed as more of a "Wild West" setting when it comes to regulation.

This article will not make a case for what the market penetration will be, but for the sake of the evaluation, we'll pick a rather arbitrary value of 15 percent, both for bitcoin as a currency and bitcoin as a store of value. You are encouraged to form your own opinion for this projection and adjust the valuation accordingly. The predominant medium of exchange is government backed money , and for our model we will focus solely on them. Roughly speaking, M1 which includes M0 is currently worth about 4.

M3 which includes all the other buckets minus M1 is worth about 45 trillion U. To this, we will also add an estimate for the worldwide value of gold held as a store of value. While some may use jewelry as a store of value, for our model we will only consider gold bullion. The U. Since there has in recent years been a deficit in the supply of silver and governments have been selling significant amounts of their silver bullion , we reason that most silver is being used in industry and not as a store of value, and will not include silver in our model.

In aggregate, our estimate for the global value of stores of value comparable to bitcoin, including savings accounts, small and large time deposits, money market funds, and gold bullion, come to If Bitcoin were to achieve 15 percent of this valuation, its market capitalization in today's money would be This is a rather simple long term model.

Perhaps the biggest question it hinges on is exactly how much adoption will Bitcoin achieve? Coming up with a value for the current price of Bitcoin would involve pricing in the risk of low adoption or failure of Bitcoin as a currency, which could include being displaced by one or more other digital currencies.

Models often consider the velocity of money, frequently arguing that since Bitcoin can support transfers that take less than an hour, the velocity of money in the future Bitcoin ecosystem will be higher than the current average velocity of money. Another view on this though would be that velocity of money is not restricted by today's payment rails in any significant way and that its main determinant is the need or willingness of people to transact.

Therefore, the projected velocity of money could be treated as roughly equal to its current value. Another angle at modeling the price of Bitcoin, and perhaps a useful one for the near-to-medium term, would be to look at specific industries or markets one thinks it could impact or disrupt and think about how much of that market could end up using Bitcoin.

Commodity Futures Trading Commission. Accessed May 13, Congressional Research Service. Board of Governors of the Federal Reserve System. Buy Bitcoin Worldwide. Federal Reserve Bank of New York.

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Bitcoin Profit reported this review for breaching of Trustpilot guidelines. We are currently assessing the review in accordance with our reporting processes. Bogdan Ciprian 8 reviews. Praesent nec erat convallis Lorem ipsum dolor sit amet, consectetur adipiscing elit. Bitcoin Profit reported this review for breaching of Trustpilot guidelines. /5(5). Jun 30,  · In aggregate, our estimate for the global value of stores of value comparable to bitcoin, including savings accounts, small and large time deposits, money market funds, and gold bullion, come to. Dec 13,  · In the Bitcoin whitepaper, Nakamoto explains that each Bitcoin transaction has to be verified by a decentralized group of computers – also known as miners. In exchange for verifying transactions and auditing the network ledger, these miners get Bitcoins as a reward. Tags:Bitcoin brokers in uk, Day trading btc, Trade google play credit for bitcoin, Poloniex minimum deposit bitcoin, Grid trading bitcoin