Why is Bitcoin Popular? Zhihu (Why does Bitcoin make money?)

Why is Bitcoin popular? Zhihu Zhihu is the world’s most well-known blockchain knowledge learning platform, providing education, communication, and investment opportunities to a wide range of users. At the 18th “China Entrepreneur Conference” held on June 28, 2018, on the tenth anniversary of the birth of Bitcoin, people began to pay attention to the field of digital currency, especially the development prospects of the Ethereum ecosystem, which are worth looking forward to.

Here is a partial transcript: What is Bitcoin? Why is it so popular? Let’s first look at the historical characteristics of Bitcoin:

1. From the birth of the first electronic cash system in 2008 until now, it has been nearly 10 years, but it has not been fully popularized. It has only gradually developed into a universal financial tool today;

2. Since 2013, the price of Bitcoin has been soaring, not only the price keeps rising, but even the founder did not imagine the overvaluation of its value—Bitcoin is one of them. Of course, it also has many flaws that need to be solved, such as weak anonymity, etc. However, it is very difficult to apply this technology well.

3. The Bitcoin network congestion problem has been around for a long time. With the advancement of Internet technology, more and more users have started to use Bitcoin for payment, thereby improving transaction efficiency and reducing transaction costs.

4. Why is there such a close relationship between Bitcoin and gold? Many people regard Bitcoin as a means of exchange or a store of value, because they believe that Bitcoin can be used as a hedge mechanism against inflation. Bitcoin is similar to stablecoins like gold, but its main purpose is not to exchange goods or other cryptocurrencies, but to purchase something (such as stocks) to store wealth. Additionally, it has many advantages, such as the ability to freely transfer without any permission, so Bitcoin can be said to be a decentralized value transmission protocol.

In conclusion, although Bitcoin is a form of virtual asset and is still in the early stage of development, it still faces many challenges in practice: such as how to guarantee identity through cryptography and how to protect privacy, etc. Therefore, Bitcoin is not a true substitute in the true sense.

If Bitcoin is a speculative emerging thing, then Bitcoin is actually created in a set of algorithmic systems written by computer programs. In other words, you cannot give your data to someone else to store, nor should others control your records and disclose all information transparently. In fact, many times, these algorithms are often insecure and unreliable, and this situation occurs when errors occur. For example, if you want a project to succeed, you need to establish a basis of trust first, and then you can apply to the other party. When a company decides to close its operations, it will require another company to immediately stop its services. This phenomenon often occurs due to regulatory policies, which is one of the places that ordinary people find difficult to understand.

Why does Bitcoin make money

The main reason why Bitcoin makes money is that it can generate substantial profits.

First, its transaction fees are very low. Second, it is generated through mining, which makes it easier for investors to accept it when the price changes because once there is demand, it will generate a lot of profits. When the price of the coin rises to a certain height, many investors do not have so much funds to invest in it anymore, and they feel that they are not buyers or speculators at all. However, as Bitcoin rises and falls, some investors begin to sell the chips in their hands to make purchases. So naturally, everyone’s attention is focused on one point: why are so many people willing to spend money on Bitcoin?

Many people say “It has such great value now”, because Bitcoin has developed into a huge asset class. In a sense, the term “Bitcoin” can also be considered as a type of encrypted digital currency. Simply put, it is fundamentally different from other encrypted commodities such as gold or silver. If we use Bitcoin, we can understand it as “hedging against inflation”. In other words, if you have a Bitcoin, you can earn more than 1% interest (currently about 1 cent). If you hold 100 Bitcoins and hold them for no more than one year (two years), you can earn a 2% investment return.

Therefore, we can say that Bitcoin has potential, but Bitcoin itself does not exist in a bubble, and it cannot be used as a means of payment. It needs time verification and continuous growth to truly have value. So whether Bitcoin is worth making money or not, there are many questions. First of all, what is Bitcoin? Bitcoin was born on August 14, 2011, at that time there were only 21 million tokens in circulation, accounting for only one-tenth of the total, which led to Bitcoin’s price always hovering at historic highs until recently when it slowly rose to nearly $20,000, its historic high. In the past few years, due to the accelerated development of Bitcoin and the increased technical difficulties, these have caused Bitcoin to receive more and more attention and even become an important part of the global bulk commodity market. Of course, in addition to Bitcoin, there are also several other financial products such as stocks, real estate, etc., which are also ways for investors to hedge their assets, such as precious metals, foreign exchange, and other traditional financial instruments.

In summary, the main factors that enable Bitcoin to earn money are its liquidity and scarcity. The supply of Bitcoin is limited, and it also has high technical characteristics. Although this special type of asset is likely to be cheaper than ordinary paper currency, it also has extremely high volatility, especially in the US stock market. Once the US dollar index falls below zero, it may trigger a series of chain reactions, making Bitcoin more attractive but also higher risks.