Since the launch of Bitcoin in 2009, the hype of cryptocurrency was termed as a phenomenon as it shook almost financial sectors the. Only a handful of investors could foresee the future potential of cryptocurrency. Today, Bitcoin has gained global acceptance as the digital currency to invest in.
Many investors worldwide are actively taking part in Bitcoin trading, and it is now being viewed as a digital asset similar to gold. Bitcoin, along with other popular digital assets, is based on Blockchain technology. Talking about bitcoin transactions, every single transaction is carried out independently through a safe and secure server. This way, every bitcoin or cryptocurrency trader can easily buy and sell bitcoins with zero transaction fee.
Bitcoin- Just A Normal Currency Or A Digital Asset?
Bitcoin may be viewed as a currency because of its description. It is because the crypto element gives Bitcoin its intrinsic value. However, one needs to understand how assets can serve as substitutes for currencies and know the defining feature of a fiat currency, as both have distinct features and purposes.
- Distinct features
While it is possible for someone to use precious assets such as gold to achieve the same objectives as those of currencies, they have separate features. Until recently, currency values were equated with gold to help maintain their value.
Throughout history, other assets such as whisky, tobacco, cattle, and various others have been used as a substitute for currency. People may choose to use currency substitutes either because they do not trust a currency as a store of value or that the coins and currency notes are not readily available at a particular moment.
- Nature of a fiat currency vs. asset
Currencies are nationalized value exchange tokens with implied potential for political interference. Talking more a particular currency, there remains present always a flexible nature that has the ability to manipulate its market price value at point of time.
While currencies are a matter of opinion, assets are a matter of fact. It is common that central bankers will increase the supply of a fiat currency to suit either their purpose or the existing political climate at a particular point in time. Such measures need to be taken; otherwise, the currency will have a finite supply and lose the characteristic that makes it a fiat currency. On the other hand, Bitcoins have a limited supply, which is why it can see such a steep rise and fall in value compared to other traditional currencies.
- Bitcoin has a limited supply
Bitcoin and other digital assets severely vary from fiat currencies because the number of Bitcoins in circulation cannot be altered. Hence, they are similar to assets, and as they are digital, ‘digital assets is an apt description for such an asset.
Another distinguishing factor between Bitcoin and a fiat currency is the lack of a centrally regulated interest rate. Even though there exists a market to lend Bitcoins or another form of cryptocurrencies, still, there is no fixed set rate. We have discussed digital assets in the financial sense, but a digital asset can also refer to photos, documents, videos, social media accounts, and domain names. In cases of asset ownership, transfer, and access to the traded assets in case if the asset holder passes away any day.
The common thread that binds all these definitions is that digital assets are composed of two key elements: intrinsic and extrinsic value. At the same time, intrinsic value denotes why someone might be willing to pay something to own an asset, extrinsic value results from the non-integral aspects that contribute to the asset’s overall worth.
Important factors such as volatility and expiry time determine the market price value of digital assets that are mainly represented by metadata. So, the extrinsic value is just as important as the intrinsic value. In the case of Bitcoin, every single transaction record gets stored safely and securely in the blockchain system.
On the other hand, the cryptography that makes it immutable is its intrinsic value. This instills a user’s trust in Bitcoin as a digital asset. So, if you are interested in investing in Bitcoin, visit how bitcoin changed the world platform to know more about this cryptocurrency.