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Why is 1 Bitcoin so much?

Bitcoin has seen an astronomical rise in value over the past decade, going from being practically worthless to trading at over $20,000 per coin today. This has led many to wonder why 1 Bitcoin is worth so much money. There are several key factors that have contributed to the meteoric rise in Bitcoin’s value.

Limited Supply

One of the main reasons that 1 Bitcoin is worth so much is the limited supply. Unlike fiat currencies which can be printed endlessly by central banks, there will only ever be 21 million Bitcoins created. This fixed supply ensures Bitcoin cannot be devalued through inflation. Additionally, of the 21 million Bitcoins, it is estimated that 30-40% have been permanently lost due to things like forgotten private keys. This further constrains the actual circulating supply.

Due to the capped supply, as demand for Bitcoin increases the price per coin must increase accordingly. The limited issuance rate also means that the supply cannot respond to changes in demand quickly. All of this creates parabolic moves in the value of Bitcoin as demand outpaces supply.

Increasing Adoption

Another key driver of Bitcoin’s value is the increasing adoption as both a store of value and payment method. What started out as an obscure cryptographic experiment has turned into a global phenomenon.

Major companies such as Microsoft, AT&T and Overstock now accept Bitcoin for payment. Major financial institutions such as Fidelity, TD Ameritrade, and Goldman Sachs have started to provide Bitcoin related services. PayPal alone has over 325 million users that are now able to buy, sell and hold Bitcoin easily.

Perhaps most significantly, entire countries such as El Salvador have adopted Bitcoin as legal tender. All of this serves to validate Bitcoin as a legitimate financial asset and increases demand.

Year Notable Bitcoin Adoption Milestones
2010 First Bitcoin transaction for a consumer product (2 Papa John’s pizzas)
2014 Major retailers like Overstock, Newegg and Dell begin accepting Bitcoin
2017 Bitcoin futures trading begins on CME and CBOE exchanges
2021 El Salvador makes Bitcoin legal tender

As more people start to view Bitcoin as a legitimate asset and use it as a payment method, this drives up demand relative to the limited supply.

decentralization

Unlike traditional fiat currency, Bitcoin is completely decentralized and not controlled by any single entity. The Bitcoin network is maintained by a decentralize network of voluntary miners and nodes. This eliminates the risks associated with centralized custody and control.

Decentralization makes Bitcoin resistant to attacks or manipulation by governments and financial institutions. There is no central point of failure. This unique attribute affords Bitcoin unprecedented durability and helps drive trust in the system.

Transparency

The Bitcoin blockchain maintains a public ledger containing every single Bitcoin transaction ever executed. This radical transparency provides assurances that coins cannot be counterfeited or double spent. It also gives users complete control over their funds.

The openness of the blockchain combined with the decentralized architecture provides strong protections against fraudulent transactions, abuse of power, manipulation, and censorship. This engenders tremendous confidence in the Bitcoin network as a fair and secure means of storing value.

Scarcity

Not only is Bitcoin’s supply fixed, but new bitcoins enter into circulation at a predetermined and diminishing rate. The number of new bitcoins created each year is automatically halved every 4 years until the total 21 million supply cap is reached. This controlled supply rate creates scarcity.

The fact that Bitcoin is provably scarce and new supply is diminishing makes it more desirable over time. With fiat currencies, unlimited amounts can be printed at will, devaluing existing currency holdings through inflation. Bitcoin’s scarcity makes it deflationary over time, increasing purchasing power for those holding it.

Increased Media Attention

As Bitcoin has grown, it has captured the attention and interest of mainstream media, Wall Street, and the general public. This amplifies awareness and demand for the scarce digital asset. The media hype creates compelling FOMO (fear of missing out) pressure as people hear about parabolic price increases.

High profile billionaire investors like Paul Tudor Jones, Michael Saylor, Elon Musk and large institutions like Tesla buying Bitcoin further validates it as an emerging store of value. This kicks off a virtuous cycle of more demand and higher prices.

Conclusion

In summary, the main factors driving the extreme appreciation of Bitcoin are:

  • Limited and falling supply
  • Increasing real world adoption and trust
  • Decentralization providing durability and transparency
  • Verifiable scarcity
  • Growing public awareness and demand

Bitcoin’s finite supply and unique properties make it a scarce digital commodity. As adoption and demand increases relative to the supply which is capped at 21 million coins, large price increases are likely to continue. While volatile in the short term, Bitcoin has proven to be an exceptional store of value over longer time horizons. This helps explain why 1 Bitcoin is worth over $20,000 today and appreciating rapidly versus fiat currencies.