The big difference between Bitcoin and conventional currency is that it is not controlled by any central bank or government. There is also a big difference between investing in stocks or bonds. Because it is not a business organization that will check the annual income-expenditure account and understand which way it is going.
Bitcoin is a type of cryptocurrency or digital currency. In 2009, Satoshi Nakamoto, a pseudonym, invented the virtual currency. Bitcoin transactions are recorded in the virtual ledger of blockchain technology. There is an account of where Bitcoin went from to whom. This proves ownership of Bitcoin.
How Bitcoin is priced
Without the control of the central bank or government, a country’s economy, monetary policy, inflation rate and economic development cannot determine the value of bitcoin. The factors that influence its pricing are:
1.Demand and supply of bitcoin
2.The cost of making bitcoin through mining
3.Remuneration received through blockchain transaction verification
4.The amount of conventional bitcoin
5.Is exchanged through that
6.Various state restrictions on bitcoin transactions
7.Bitcoin’s internal management system
Let’s start with demand and supply
As the central bank issues new banknotes, bitcoin is introduced in a process called ‘mining’. Anyone can help perform transactions on Bitcoin and ensure the security of the Bitcoin network. For this you have to set up special computer parts, you have to solve mathematical problems. This is known as mining. In return they get bitcoin as a reward.
The supply of bitcoin is affected in two ways. First, the rate at which new bitcoins are created through mining is pre-determined. This rate will continue to decrease over time. For example, in 2016, the total bitcoin growth rate was 7.9 percent. In 2016 this rate was 4.4 and in 2016 this rate was 4 percent. As the demand for bitcoin grows, so does the supply.
Second, according to the Bitcoin protocol, a total of 21 million bitcoins will be introduced. If the total amount of bitcoin touches that number, it will no longer be possible to create new bitcoins through mining. That means the total amount of bitcoin is limited.
Till December 2020, a total of 1 crore 75 lakh 6 thousand bitcoins were in circulation in the market. That’s 8.5 percent of the total bitcoin supply. The number must have increased in so many days.
It is important to keep in mind the competition
Bitcoin is undoubtedly the most popular cryptocurrency. However, many more such currencies are being introduced. Bitcoin’s ‘closest’ competitors include Ethereum, Tedder, Binance Coin, Cardano and Polcadot. This competition for cryptocurrencies is good for investors. The price can not be skyrocketing. However, in the case of Bitcoin, it has spread so much in the mouths of the people that it has got a chance to be far ahead of the rival currencies.
What is increasing the cost of creating new bitcoins
Although it is a virtual currency, there is a cost to make bitcoin. There is the cost of setting up computer parts, there is the cost of electricity to operate them.
Suppose, at the current rate, one bitcoin is created every 10 minutes. Now if a minor does bitcoin mining, he will get one bitcoin every 10 minutes.
If he works 100 people, the competition will only increase. No more than one bitcoin will be created in those 10 minutes. Imagine for a second you were transposed into the karmic driven world of Earl. In other words, the rate of Bitcoin production remains the same, even though the cost of that part, the cost of labor and the combined electricity bill have skyrocketed. That means the cost of making bitcoin is increasing. And the cost of making Bitcoin has a big impact on the price.
Confusion of policy makers
As Bitcoin and other cryptocurrencies become increasingly popular, policymakers around the world are confused about what to classify as such a virtual asset. Cryptocurrencies are classified as ‘securities’ by the U.S. Securities and Exchange Commission. The Commodity Futures Trading Commission of the same country has referred to these currencies as ‘commodities’. It also creates confusion about which companies will control currencies like Bitcoin.
Bitcoin’s internal management system
In the absence of a central control system, the burden of handling Bitcoin transactions and keeping the network secure rests with software developers and minors. Solving common problems is not possible long ago. This is increasing frustration in the bitcoin community.
The software that currently handles Bitcoin transactions can only complete three transactions per second. Although it was not a problem in the beginning, the demand for bitcoin transactions increased and now it is because of the software that transactions are slowing down. Many fear that at some point investors will become more interested in trading in other cryptocurrencies.
When does the price of Bitcoin go up, when does it go down?
Bitcoin price fluctuations are influenced by the news, speculation, availability, etc. When such negative news is published, many investors rush to sell their bitcoin. This reduces the price. When positive news is published again, the opposite happens.
Apart from that, the price decreases as the amount of bitcoin sold in the market increases. Again, the more companies accept Bitcoin as a means of investment and exchange, the higher its price.
Another thing is that many people do not believe in conventional currency and look for alternative means. Many people are choosing Bitcoin as there is no central control system. The price is also rising.
Different countries have restrictions on transactions in cryptocurrencies such as Bitcoin. That also affects the price of Bitcoin. Recently, Chinese banks have been instructed to stop any transactions in Bitcoin. Then the price of Bitcoin fell.