Bitcoin is back on the news which means that the price is going crazy for months already which means that you are wondering: why is the price of bitcoin going up? I am not going to explain here how bitcoin works, there are already too many videos about that on YouTube. I am goin to rather discuss what the current price action means in the context of Bitcoin past and possible future.
But Alejandro, why does Bitcoin have value in the first place if it is just a piece of code, thin air? Well bitcoin works in the same way, in the sense that their value exist only in our imagination! The only reason money works is because we ALL agree that is has value. The day we don’t agree anymore that some pieces of green paper have value, the value will go down. Right?
Quoting Yuval Noah’s Sapiens“Money is the most universal and most efficient system of mutual trust ever devised.”
Indeed, money represents a system of trust between you and the government, and between you and other consumers. As long as people trust each other and the Fed, everything is fine. The Aztecs, for example, used cocoa beans as currency! Why? Because chocolate is awesome, that’s why. They did have gold, but who cares about the shiny metal when you have cocoa beans!
So it does not matter if we are talking about a piece of paper, a piece of metal, cocoa beans or a mathematical abstraction beautifully designed and implemented by Satoshi Nakamoto, at the end of the day it is a system of trust. A system that allows us to exchange goods and services. A Kg of cocoa beans has an equivalent price in USD, gold and BTC as long as we agree on that.
One of the differences between normal money and bitcoin, however, is that money is green paper and green paper can be fabricated in the magic green paper factory (aka the Fed) whereas bitcoin -because of the way it is designed- has a finite limit! There will ever be only 21 M bitcoins. Th...