What is Bitcoin and Why does it have the price that it does.

This is such an interesting topic.  As programming is a very necessary part of my job, it was very easy for me to understand the technology behind Crypto-Currency.  While I don't mean all the small intricacies like the algorithms that drive it, I mean I understand it as a whole.  For most people, the technology is mysterious and magical, but it's really quite simple in concept, and the concept is what we need to understand in order to understand whether or not Crypto-Currency has any actual value.

Block Chain or The Ledger System.

Simply put, it's called a block chain because each transaction is literally blocked off from the next.  So what would that look like visually?

[Block1(Transaction1)] ----> [Block2(Transaction2] -----> [Block3(Transaction3] ---->  ... etc.

This is just the ledger system behind it that is so famously called block chain technology.  Whether it's Bitcoin or Etherium or any other new flashy Crypto-Currency, they all use this ledger system.  This is of course a simplistic explanation, however, it's the only truly necessary explanation that's needed for the people not involved in the coding.

Cryto-Currencies, How they work.

Whether it's BitCoin, Etherium or even DogeCoin, they all rely on the previously explained Block Chain or Ledger System.  

They're on a network of computers, that is a group of computers that all use these softwares.  To be clear, all of these softwares are different from each other.  Think of email systems, your gmail and yahoo mail are totally different systems.  

So on the BTC(bitcoin) system, all of the computers involved utilize the BTC Ledger System, each time a transaction block happens, that gets written into the BTC network and every computer that is running the BTC Ledger System is updated with this transaction block.  The reason this is necessary is because that's how all of the transactions are tracked so that no 1 BitCoin can be used for 2 transactions simultaneously making it impossible to make fraudulent transactions on the BTC System.  Also, with the coding involved, supposedly once a transaction block is confirmed, the code block cannot be edited, so that also prevents hacking the Ledger System, supposedly that's also why people using BTC can't be tracked.  But I'll talk about the tracking later on.

How Crypto-Currency is actually used.

So now that you know what the Block Chain or Ledger System is and how Crypto-Currencies work on their respective systems, How are they actually used?

In order to actually use BTC, a business or institution needs to create an account on the BTC System.  Upon receiving BTC as a payment, the business can actually hold onto the BTC in hopes it'll increase in value or exchange it for it's dollar value with a Crypto-Exchange Bank.  In which case, they too will either hold onto it or sell it to someone whose willing to pay for it in dollars.

I'll use Tesla for this example because at an earlier point they did take BTC for their cars.  So if someone went to buy a Tesla car worth $35,000 with a BTC which is worth $50,000, they would get back $15,000 either in BTC or in dollars. .

Why Crypto-Currency doesn't work.

In order for Crypto or any other Currency to work, there has to be stability in the value of the currency.  Because of a lack of central control, Crypto-Currencies fluctuate wildly.  It's due to this fluctuation that there really isn't much use for the Currency itself.  You see, you can't spend the BTC to buy something if there isn't a vendor on the BTC Network.  

BTC has been out since 2010, after 11 years, there's only 164 companies that are on the BTC Network and willing to accept it as payment of some sort.  Here's a link to a page that lists those businesses.

https://paybis.com/blog/companies-that-accept-bitcoin/

Because of the wild fluctuation, not accepting BTC makes sense from any sort of business perspective.  If Tesla prices it's vehicle at 35k and takes a BTC that's worth 50k, then gives change to the customer, they have to rely on the fact that when they do turn that BTC in for dollars, that they will get that 50k value or higher.  Because Tesla is a big company, they have the wherewithal to take that gamble.  But if the value of the BTC drops like it has to the recent 30k mark, Tesla not only didn't receive the total payment of the car, but they also gave back 15k in change to the customer.

In the previous example, it's very easy to see why most businesses will not accept Crypto-Currency for big purchases, this is also the weakness of BTC.  The value volatility along with the inability to use it for anything that isn't on the BTC Network makes the true value of BTC nothing more than a very expensive Network gift card.  That is precisely how gift cards work, you use our dollars to buy a plastic card that has a bar code that's worth the same dollar amount in goods at that store.  Outside of that store, the gift card is effectively useless.

How Crypto-Currency can work.

In order for Crypto-Currency to work, it has to be tied to some physical asset.  When someone invests dollars into BTC, they're essentially storing their wealth in a pattern of 1's and 0's on a network.  If Crypto-Currency was tied to a physical asset like Gold, then it would have a very true and concrete value.  If 1 BTC = 1 oz gold coin, it could and would replace the fiat currency of dollars.  It would bring stability and reliability to the Crypto-Currency because your store of value is ultimately in a physical asset.

Why Crypto-Currency has such a Price.

The pricing of BTC is effectively the same as the economy during the COVID Pandemic, it's artificial.

It's artificial because as I wrote earlier, it doesn't have a true value of use.  The pricing of BTC relies entirely on relying that another person will come along and be willing to pay more for the BTC than you did.  If no such person shows up, you end up with not much at all because you can't use it at any business outside of the ones on the BTC Network.

The economy during COVID is artificially suppressed in terms of production of goods and services due to lockdowns and is artificially spurred by the unprecedented levels of printing of dollars.  

BTC has the same problems, it can't be spent on much, yet people in very powerful positions can shift it's value with a single tweet such as Elon Musk.

The Powers that Control Crypto-Currency.

While Crypto-Currencies are unregulated, hence there is no centralized control, it is highly susceptible to control.  Back when BTC was at 29k a few years ago, I was really into following it and the markets and accurately predicted it was going to drop down to under 5k in the next 3 months, within those next 3 months, it had dropped to 3.5k.  I didn't make this prediction because I'm a financial wizard, I was able to predict it for a wide range of reasons.  But mostly what I mentioned in this post.

The difference today isn't those same problems are fixed, they are still present.  The problem that can't be fixed for BTC is that it's too volatile for most companies to accept as a reliable form of payment especially for big purchases.  But the new thing is that many hedge fund managers and high end wealthy people like Elon Musk, Jeff Bezos and Mark Cuban are investing in BTC.  At this point, all of them are speaking out in support of Crypto-Currency.  

This fools the average person because these wealthy people make it sound ground breaking and amazing as if they're going to do something with it so that everyone ends up buying BTC and this raises the value of the BTC they're holding.  They effectively drive up the value with their pro Crypto messages.

Why this fools the average person is because they're not actually willing to accept Crypto-Currencies for their own businesses where they stand to risk losing money, they just want the average person to believe they will or that they're working on it so the average person has faith that eventually BTC will have some actual legitimate value.  Because of this sort of mechanism, BTC's price has skyrocketed and those people who bought in early and hyped up BTC are now rich and in the end, it'll be the poor average person who bough into this messaging that will be left holding the bill.  Tesla proved that recently, although they gave a climate change reason which seems very questionable.

Conclusion.

So to wrap up, should you  buy BTC or any other Crypto?  The choice is yours.  My goal was to inform anyone who reads this about how and why Crypto-Currencies get the dollar values that they do.  If after understanding the truth behind how this works and you're okay with working with that, then go for it.  

The way Crypto-Currencies work don't change and they won't change, they're a gift card for their Network and are only usable at any businesses on those Networks willing to accept them in exchange for goods and services, there is literally NO difference between BTC and a Subway Gift card in terms of how they work, but if someone came up to you to try to sell you a Subway Gift Card for 5k, would you buy it?

Please feel free to leave a comment or write to me.