How Is the Price of One Bitcoin Determined?

Bitcoin is a type of cryptocurrency that was released in 2009 and was the first of its kind to ever exist. It was released by a mystery person (or group of people) who go by the name Satoshi Nakamoto. The transactions made are run through a highly intelligent technology known as blockchain which is able to show the transaction history for each individual unit and it is most commonly used to determine ownership.

All of the traditional forms of currency are issued by a central bank; however, Bitcoin differs greatly from this. Instead, it is a decentralized form of currency that is not backed by a central bank or government authority. Contrary to popular belief, Bitcoin is also a whole lot different from buying bonds or stocks because of the fact that Bitcoin is not actually a corporation.

Understanding the factors

There is definitely a lot to unpack and understand when it comes to the factors involved in determining the price of Bitcoin. With apps like the Bitqt App becoming available, there are even more introduced factors making the determination process even more complex. Bitcoin is not issued by a bank or even a government, so this means that inflation rates, monetary policy, and the economic growth measurements that will apply to normal currency do not actually apply to Bitcoin.

Instead, Bitcoin prices are determined by the following factors:

  • Exchanges it trades on
  • The supply of Bitcoin
  • The rewards given to Bitcoin miners when they verify transactions to the blockchains
  • Its internal governance
  • The markets demand for Bitcoin
  • The costs to produce Bitcoins with the mining process
  • Regulations governing the sale of Bitcoin
  • The number of cryptocurrencies competing with Bitcoin

Supply and Demand

There is much more to it than there is with normal currency and Bitcoins supply is impacted in two different ways. First, Bitcoins are allowed to be created at a fixed rate due to brand new protocols that have just come into play. The rate at which the new Bitcoins are made is created so that over time it will become slower.

The growth has slowed drastically over time and looks like this:  6.9% (2016), to 4.4% (2017) to 4.0% (2018). However, one big thing that is a huge issue is that the demand can far outweigh the supply and if this is already happening now, imagine what it will be like in the years to come. Another thing that makes a huge impact is the fact that the supply of Bitcoins may outweigh how much the system actually allows to exist.

The number of Bitcoins allowed to be made is 21 million and with many being lost and forgotten about overtime, the number of Bitcoins circulating will likely become limited. Once this number is reached miners will no longer be able to continue thus resulting in the cease of Bitcoin production. Once the 21 million Bitcoins are in circulation, the price will evidently depend on the practicality of it all.

 

 

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