One of the most interesting technological trends in recent years has been the rise of cryptocurrencies. These digital assets are frequently in the news, either because of massive price increases or big dips in value.
The volatile nature of Bitcoin and other cryptos has made them attractive to investors and traders who are looking to make profits. In this article, you’ll learn more about what influences the price of Bitcoin and whether it can be controlled.
What is Bitcoin?
Bitcoin is the original cryptocurrency. Since it went live in 2009, many others have followed, but none have quite reached the heights of this coin. It was created by a mysterious person known as Satoshi Nakamoto and designed to allow peer-to-peer money transfers online. The technology it’s built on is known as blockchain, which is a novel way of storing data.
Data is stored in blocks on the chain. However, it must first be approved by other nodes on the network. The entire chain is shared between all computers that make up the network, meaning it will always be verified automatically. This eliminates the need for a third-party or middleman like a bank or financial service.
The decentralised nature of Bitcoin is one of the main things that make it so interesting. It means it’s not controlled by a single person. In addition, only a set number of Bitcoin will ever exist. Although new coins are “mined” each time a block is created, the number of coins that can be produced halves every four years. This reduces the total supply and makes it deflationary, causing the price to increase.
Why the Price of Bitcoin Changes so Much
There are lots of factors that influence how much something is worth. Although Bitcoin is purely digital, it still has value to a lot of people. However, this value can change a lot in a short space of time. Here are some of the reasons why the price moves so often.
The supply of an asset has a major impact on how it’s valued. Items that are rare such as precious gems or gold, will be worth more. Even though it’s a digital asset, Bitcoin is hardcoded to only ever have a maximum supply of 21 million in total. The supply is fixed, and the rate at which they’re produced slows over time, reducing supply and causing demand to grow.
Bitcoins are produced by mining, which is a process of validating the network by solving encrypted numbers. Miners receive a reward for this, with new coins created for each new block. Over time, the block rewards are reduced, and the cost of obtaining these rewards increases. It takes a lot of electricity to mine Bitcoin, and so this cost also has an influence on the price of the coin. Miners need to sell Bitcoin to make a profit, so they’ll raise prices as it gets harder.
Bitcoin hasn’t been around for long, but governments all over the world have sought to introduce regulations in order to control it and limit its use. These regulations can have a big impact on price. If a country that’s a major part of the Bitcoin network bans this asset, it could have far-reaching implications on the price, making it fall rapidly. Previous crashes have often been blamed on regulatory efforts.
Traditional and online media has played a big role in the price of Bitcoin too. Over the past few years, major news networks have increasingly spoken about cryptocurrency, helping new investors discover these digital assets. Aside from that, they’ve also been featured in TV shows and movies, bringing the idea of Bitcoin to a wider audience and increasing the price further.