Why is Bitcoin worth 800% more?

Posted on: December 19th, 2017 by jms No Comments

As of this writing Bitcoin (BTC) is worth $19,104.30, while the second most valuable crypto currency, Bitcoin Cash (BCH), is only worth $2,174.96, or nearly 8x lower than BTC.

 

So what is it about Bitcoin that makes it the most valuable crypto currency in the world with no equal?

 

I attribute it to what’s called the Network Effect. The Network Effect is an economic effect that occurs when a product or service reaches a certain critical mass of users which, in turn, encourages other users to join in. Facebook is a perfect example of a Network Effect in action. The more users that join Facebook, the more valuable Facebook becomes, and the more users want to join Facebook.

 

Bitcoin was the first crypto currency to gain mainstream attention just a few years ago when it hit just over $1,200. As a result, when we think about crypto currencies, we think about Bitcoin. Now, as the idea of crypto currencies begins to see a far greater increase in interest, we are seeing more people investing it the first one that comes to mind, making it that much more valuable. In essence, Bitcoin is worth more because more people want to own it, and as more people want to own it, even more people want to own it. It doesn’t really matter at this point why people want to own it, just that there are enough people who already own it.

 

The Network Effect is the main reason why I predicted Bitcoin would be the clear leader for years to come back in 2014. I wasn’t wrong, and I still believe Bitcoin will be the clear leader for the foreseeable future. Other crypto currencies like Ethereum and Litecoin are enjoying the benefits of being a less expensive, but still a popular alternative to an otherwise very high barrier of entry into crypto currency investing. Some altcoins like Ethereum and Litecoin do offer advantages over Bitcoin in some ways, but I don’t believe this is the main reason for their growth. In fact, I think we might find that many new investors are less concerned about the potential usefulness of any crypto currency as much as it’s future value potential. Hopefully that doesn’t ultimately negate each of their respective values in the long run.

 

The Network Effect, by the way, is also what makes Bitcoin’s blockchain so valuable, and I don’t mean it’s dollar value. A blockchain is really only as valuable as its user base. We often hear about blockchain being the thing that has true worth and potential, but the truth is, without a large enough network of users, a blockchain actually becomes less useful, and in turn, less valuable. Bitcoin’s blockchain will only continue to increase in value as Bitcoin increases in value. Likewise, as Bitcoin’s blockchain grows, Bitcoin will continue to increase in value. The two go hang and hand. Blockchain technology is certainly a breakthrough technology, but it isn’t as significant without a large enough user base behind it. Blockchain technology requires user acceptance to be valuable because without users it’s just another way of storing transactional data. A user base that adheres to the blockchains protocol for validating new blocks is what makes the data it stores meaningful. Think of it as a peer-to-peer network like Lime Wire or BitTorrent. Would you use either of those services if no one else was using them?

 

Blockchain is new a really cool, but before we start imagining how it will redefine every industry, let’s first understand what it’s capabilities and limitations are. As it relates to Bitcoin and other altcoins, it’s potential is clear. As it relates to private or closed networks, I have my doubts about it’s potential. And that’s why I believe Bitcoin will continue to be a leading technology and unseparated from the use of blockchain.

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