Bitcoin has broken through a 12-year high, with a market value of over $2.6 trillion. What exactly is supporting its value?

However, if you randomly pick someone in the circle and ask him: "What is the use of Bitcoin? What is its value?" I think many people may not be able to come up with any other answer except "speculation". Sometimes, when we look up at the "sky-high" price and market value of Bitcoin, have you ever thought: "A virtual thing with almost no value, no background and no backing at birth, in 12 years, from "starting from scratch" to a market value of 2.6 trillion, how did it make all this money?" (For the birth of Bitcoin, you can review: Biography of the Coin King 1)

In essence, Bitcoin is just a computer software, which is just a bunch of incomprehensible codes to most people, and it is almost impossible to see what value it has.

As for the person who made a fortune from a piece of software, the one that we are most familiar with and the easiest to understand is Bill Gates and his Microsoft Windows operating system. Windows has entered thousands of households and industries. People have improved their productivity and created huge value through this computer program. As a result, Microsoft even became the company with the highest market value in the world.

What about Bitcoin, a software with a particularly high "value"? "Value comes from consensus", this sentence is so common that many people want to know what kind of value Bitcoin brings to specific people and things, thus supporting the consensus on it and steadily pushing up its market value to more than 2.6 trillion?

01
Miners and other mining ecosystem participants

Simply put, Bitcoin mining machines are machines that bring miners a steady stream of profits. They can lay eggs and create value like chickens, and can even lead to the path of becoming billionaires. This is the value of Bitcoin to miners, mining machine operators, mining pools (service providers), and other people involved in the upstream and downstream of the mining ecosystem.

I remember that there is a popular science article for beginners in Vernacular Blockchain titled "Is there a difference between a Bitcoin mine and a chicken farm?" which introduces that miners are the most important participants in Bitcoin, and for miners, a mining machine that can produce Bitcoin is a "hen" that lays golden eggs. Although mining is not as simple as imagined, and it is really a bit like running a "chicken farm" that generally requires providing various suitable environments, maintenance, and the delivery of "food" (energy) to successfully lay "golden eggs" and make a profit, miners are attracted by Bitcoin's profit distribution mechanism, and new miners continue to join.

More than a decade later, we have seen several self-made crypto tycoons come to the fore from the mining industry, and it is the miners who ensure the security of the Bitcoin system and allow Bitcoin to continue to be strong.

02
user

The full name of the Bitcoin system is: a peer-to-peer electronic cash system. Therefore, for users, it can be used to initiate transfer transactions. So why use it to transfer money? To put it bluntly, it saves time, effort and money.

Bitcoin does not need to be transferred through banks, third-party payment companies, etc. but can directly reach the other party's account, which eliminates the processing time, operating manpower and costs of third-party institutions. The high-rise buildings that banks and other financial institutions build for themselves with the fees collected from financial business can illustrate how huge this fee is.

In fact, many people do not quite understand the concept of third-party guarantee agencies. Many times our transfers are free because in a credit society, small transfers are completed through credit lines between different financial institutions and are not real transfers.

So what if it is a large transfer? For example, what about the super large transfers on the Bitcoin network worth tens of millions, hundreds of millions, or even billions of yuan? If the bank is used to handle the transfer of this money, it is fine for interbank transfers, and you only need to keep a record yourself, but if it is an interbank or even cross-border transfer, almost all banks will tell you that transfers of tens of millions need to be handled at the counter and an appointment must be made in advance. So what if it is a transfer of hundreds of millions? Not to mention transfers, even if you want to withdraw 100 million yuan from your bank account, it is very difficult, and you need to use various armored vehicles, security, a large number of people to count the money, etc.

Processing an asset transfer of over 100 million yuan through the Bitcoin network only takes one minute, costs only a few yuan, and the funds are credited extremely quickly. This is the value of Bitcoin.

03
Savers, Speculators

Because Bitcoin has practical value and many excellent properties that are particularly similar to gold, and some of its properties are better than gold, and it also has the same "partial" risk aversion and value storage functions as gold, it has gradually been regarded as an international hard currency like gold and has begun to be hoarded by many people.

And because it is only "11 years old" this year, it seems to be an extremely restless age before adulthood. Constantly being questioned by the outside world has led to its huge volatility. The greater the volatility, the greater the room for speculation and hype, so speculators come. So we will see stories such as the prodigy who bought Bitcoin in his early years and became rich, and the story of a man breaking his leg by buying pizza with a sky-high price of Bitcoin. Of course, we will also see speculators who have lost their fortunes.

For example:

Take the story of the miners and the chicken farm mentioned above. Bitcoin is the "golden eggs" laid by the mining machine, just like the eggs laid by chickens. The value of eggs is self-evident to people. It is not only rich in nutritional value, but also the raw material for various delicacies. It can bring huge economic benefits directly and indirectly. Most people will buy a bunch of them every day and store them in the refrigerator to enjoy slowly.

Due to the influence of various external factors, such as bird flu leading to a reduction in egg production, egg prices often fluctuate greatly. As a result, egg futures, which are the favorite of speculators, came into being, and eggs were also "speculated" by speculators.

This is the value that Bitcoin brings to savers and speculators.

04
People in poor, backward or "turbulent" areas

Since Bitcoin has low transfer costs and short transfer times, in many poor and backward countries, transferring money through encrypted networks does not require the construction of expensive network infrastructure. Bitcoin's infrastructure is built by miners around the world and does not need to be borne by the governments of poor countries. There are no intermediary fees for paying and distributing salaries, which can save a lot of money.

These countries and regions in need often receive funds from all over the world for poverty alleviation. There are many examples of charities around the world donating through Bitcoin, because in this way donors can transparently see all the transfer paths of their money to see if it has flowed to places where it should not go. This helps to improve the openness and transparency of the charity industry and allows people in poor and backward areas to truly receive help.

So how usable and valuable are cryptocurrencies such as Bitcoin as transfer infrastructure in poor and backward areas?

For example, thanks to the "infrastructure maniac"-style heavy investment and development, convenient and economical payment methods like WeChat and Alipay in my country are almost unusable in many countries. Because of the backward infrastructure, it is difficult for them to develop similar mobile payments.

With Bitcoin, you only need a device (regardless of configuration) that can run a simple program to send a signed and encrypted transfer message to complete the transfer, regardless of whether the other party is online or not. Even without an Internet connection, you can successfully complete the transfer by sending the private key-signed and encrypted message to a third party through SMS or even handwritten letters to help broadcast it to the Bitcoin network, which is impossible to complete in any traditional way.

05
Energy Value Storage

There are many such corners in the world, which are remote but rich in minerals or natural resources such as water, wind, etc.

For example, there are many coal mines in some areas, but they cannot be transported out due to high transportation costs. At the same time, due to sparse population, the electricity generated by the thermal power, hydropower stations, and wind farms built in these areas is very surplus, and the economy of these areas is often relatively backward. At this time, they are very much in need of and welcome the entry of miners. Miners not only bring a large number of jobs, but also convert the local surplus energy into electricity resources and then generate a large amount of income through Bitcoin mining. This move is actually equivalent to storing the energy value that may have been surplus and wasted through the Bitcoin network, and then paying it to the local government and people through electricity bills, driving the local economy.

Of course, this field is still under continuous exploration. Perhaps the emergence of network facilities such as 5G in the future will enable the full utilization and storage of clean energy and natural resources around the world, bringing more substantial income to the people in the region.

06
Uses of "black" and "gray"

Due to the various characteristics of Bitcoin, many people may have heard that the early value of Bitcoin was mostly supported by some "black" and "gray" uses.

As Bitcoin becomes more and more mainstream, the "sunlight" begins to clear the fog, and these "dark" corners begin to gradually feel the dazzling light. Bitcoin is like a double-edged sword, and it also has the transparency and traceability that criminals fear. With the strict supervision of various countries and the discovery of more other uses, the proportion of illegal uses of Bitcoin has begun to shrink significantly. In the future, using Bitcoin for illegal purposes may be more difficult than using cash directly.

07
postscript

The saying "value comes from consensus" can actually be said the other way around. The amount of consensus depends on how many people it helps solve and how much value it gains. Bitcoin, at the age of 12, has become a trillionaire by helping others acquire and store huge wealth, saving huge costs, and deeply alleviating poverty. Of course, the story is far from over. What will Bitcoin look like when it "comes of age"? How crazy will the world be?

This article was first published on the occasion of the 312 crash, when the price of Bitcoin was 8,000 US dollars. The original title was: "Bitcoin plummets, do you believe it is rat poison again? This "post-00s" started from scratch and is now worth trillions of dollars"