Why is Bitcoin so expensive?
Why Bitcoin is Expensive
The price of Bitcoin has exceeded 70 million won in Korean Won, attracting a lot of attention. Why is Bitcoin so expensive? See below for details.
What is Bitcoin
Bitcoin is a cryptocurrency created based on blockchain technology. It was created in 2009 by Satoshi Nakamoto. It has not been revealed whether the name 'Satoshi Nakamoto' is the name of an individual or a group.
In simple terms, Bitcoin is like cash used online. It's easy to understand when you think of the monetary unit used within the online community. 'Star Balloon' in a certain video community, 'Acorn' used in the old Cyworld, 'Meso' used in an online game called MapleStory, etc. However, Bitcoin is different in that blockchain technology is applied.
Blockchain technology is a way to record and store data. A 'block' is a unit that stores data, and a 'chain' refers to the connection of multiple computers with a database. In other words, it is a technology that stores data in blocks, connects them in a chain, and replicates and stores them on numerous computers at the same time. At this time, all transaction details are recorded in the ledger. Anyone can view this ledger, but no one can modify it.
Storing data with blockchain technology makes it harder to hack. Because data is not stored on only one computer, hacking requires hacking many computers and transforming the data at the same time. This is practically near impossible.
Why Bitcoin Price Soared
In 2009, when bitcoin first appeared, the price of one bitcoin was $0.000994. It is about 1 won. In 2021, 1 bitcoin became 70 million won. It has risen 70,000,000 times in 12 years.
The reason why the price of Bitcoin has soared is that there are so many people who want to buy Bitcoin. In the market, price refers to the value that people give. Since the quantity of Bitcoin is limited to 21,000,000, the more people want it, the higher the price.
So, why do so many people want Bitcoin?
First, it is a new asset.
Bitcoin can function as asset storage. Amid the coronavirus and global economic uncertainty, anyone looking to preserve their asset value can diversify their portfolio by purchasing Bitcoin. It is a kind of 'diversity investment'. Some people even rate Bitcoin against gold. As more and more people choose Bitcoin as a means of storing the value of their assets, the price of Bitcoin has also risen.
Second, it is a decentralized asset.
Bitcoin is a currency designed to facilitate transactions between individuals without the need for institutions such as central governments or banks. The current monetary system is centralized. Governments can create any amount of new money, and banks can easily access information about transactions between individuals. Bitcoin, which was created to compensate for these shortcomings, has the advantage of being able to protect the privacy of transactions and not being restricted by the central government.
Is Bitcoin Price a Bubble?
Some argue that Bitcoin is a bubble that doesn't feel like it's going to crash any time soon, while others argue that by the end of 2021 it will surge to $100,000 or even $300,000. Is Bitcoin Price a Bubble Right Now? Looking at the current trend, the price of Bitcoin is unlikely to go down all at once in a short period of time. Reputable institutions and business people are investing in Bitcoin, and it is difficult for the value given by so many people to disappear in an instant. Aside from that, it is still too early to assert that the Bitcoin price is a bubble, given the following trends. The reason is as follows.
First, digital currencies are becoming common.
The coronavirus is causing governments to release huge amounts of money. Because of the overflowing liquidity, investors are looking for assets with better prospects than real estate or bonds. Since Bitcoin is a 'limited' 'digital' asset like gold, it stimulated the investment sentiment of many investors, and as a result, more and more people are investing in Bitcoin.
Central banks such as the Federal Bank of America, the European Central Bank, the Bank of Japan and the Swiss National Bank are also pushing for the development of their own digital currencies (CBDCs). China is already leading the development and use of digital renminbi.
Also, PayPal has already allowed US users to purchase Bitcoin through their PayPal account, and they accept Bitcoin as a means of payment. The recent rapid increase in online shopping and cashless payments has further fueled interest in digital currencies.
This trend will be inevitable. Blockchain or Bitcoin is no longer a new thing. This can be seen as the basis for digital currency to become universal.
Second, technology is maturing.
As the technology matures, virtual currencies that complement the problems of existing cryptocurrencies are emerging.
For example, one of the biggest problems with the use of cryptocurrencies is the sheer amount of energy required to make transactions secure. Carbon emissions from bitcoin mining are estimated to be higher than those of countries like Sri Lanka. So, even Bill Gates has expressed his opinion that he does not support Bitcoin.
In response, Ethereum has embarked on a major technological upgrade that transforms the blockchain into a ‘proof-of-stake’ approach that eliminates energy-intensive computing processes. If this is successful, it could alleviate the concerns of advocates for the environment.
All investments are always at the investor's own risk.