The Real Reason Bitcoin Grew 1315.72% in 2017
Many people nowadays like to speculate about Bitcoin being a bubble, losing all of its value, or going even higher but in order to predict its future we must understand why Bitcoin is so successful.
The answer to why Bitcoin is so successful is that it is just better than all of the current global fiat currencies; in principle and in practice. First, you must understand how the current global monetary system works. I have provided the following Background below.
Background:
Currency has a set of traits that can be described as: a medium of exchange, a unit of account, portable, durable, divisible, and fungible; whereas money has all of the listed characteristics of currency but is also a store of value. For the sake of this explanation I will compare US Dollars, Bitcoin, and Gold. US Dollars are created through two primary methods.
Firstly, the Federal Reserve Bank (the central bank of the U.S.) prints dollars. Secondly, other banks loan out the money that we deposit with them. This is called “fractional reserve banking”. In the U.S. banks can loan out up to 90% of the money that people have deposited into them. They still list the full amount of dollars in a person’s account even though they only hold about 10% of that amount at any one point in time. The person’s bank account is reflecting that person’s “bank credit”. This is in effect creating more dollars (this is called the M1 money supply).
Huge amounts of dollars are created in these two ways; in fact, there is no “cap” on the amount of dollars that can be created. This is why US Dollars are subject to inflation. Currencies like the US Dollar are what is called “fiat currency”. According to investopedia.com, “Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of.”
Since the dollar is constantly being inflated it is not a very good store of value. This is why I do not consider US Dollars to be “money”, they are just a bad currency. Gold on the other hand, is money because there is a finite supply of it. This makes gold a great store of value.
Bitcoin will only ever release 21 million Bitcoins into circulation. This means that like gold, Bitcoin is finite in its supply so it cannot be inflated.
Why is this relevant?
This is relevant because the reason Bitcoin is increasing in value is that the dollar and all other global currencies are inflating against it and thus are reducing their buying power. We don’t see or feel the true inflation the dollar should be experiencing compared to other currencies because all of the other central banks are inflating their currencies as well. Bitcoin is finite. It will not inflate so, as the dollar dies Bitcoin will rise.
Regards,
coinpress21
(21coinpress.com)