Monday, 7 May 2012

Value of the Bitcoin

Lets discuss what makes a dollar worth a dollar or rather the value of that dollar.   Previously such currencies were backed by precious metals such as Gold.   US$1 may be worth a certain amount of Gold and using precious metals to back the dollars allow some value to be assigned to the dollar.   But nowadays all money are in Fiat, they are not backed by precious metals but rather by the promises of the governments issuing the currencies.



Bitcoin makes use of the concept of work.  It assumed that computational work is of value and that computational work was done to mine the Bitcoin.   The Bitcoin assumption was valid as till now despite hacking and large ups and downs of the Bitcoin, it still retain a value.  At the moment it is about US$5 to 1 Bitcoin, meaning that people or investors are valuing the work done to mine each Bitcoin at US$5.   This is how the Bitcoin derived its value.

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