How is the value of a substance decided?
The action figure shown in the above photo is of a storm trooper, one of the most popular characters from the star wars universe. Now let us imagine that the price of such action figures to be $20 a piece. Being a popular character, almost every major toy stores in the world will have such action figures in their stock.
Now Star wars being a popular brand has huge fan following all around the world. Action figures like these are in high demand all around the year. Now when a new movie of this franchise is released, the craze amongst the fans increase, and the demand for such action figures also increase. As long as the supply of this item meets the demand, the price of the item will remain $20. If the supply increases, the price may drop. Now in case, the supply decreases, but the demand keeps on increasing, the price of the commodity will keep on increasing as long as there is no alternative available in the market. This is because, for every person out there who is willing to pay $20 for this item, there might be 2–3 more people who are willing to pay much more than $20 dollars because they might feel that the value of the commodity is way more than $20.
For the same reason as mentioned above , Gold and Diamond are considered to be valuable commodities. We value gold because of its storage value. Being a noble metal, gold can stay in an un-oxidized state for thousands of years.
The same concept can also be applied to Bitcoin as well. Initially, people started investing in it because they were able to transact amongst themselves without the need for a bank at very low transaction fees. This resulted in more and more people to adopt this currency. But since Bitcoin has a limited quantity, the price started rising when the number of users also started rising, till it reached $1000 when people started thinking of it as a good investment opportunity and on December 2017, the value of a single Bitcoin crossed $ 10000!
Personally, I feel than Ether will eventually take over Bitcoin as the dominant form of cryptocurrency as it is backed by a technology known as smart contracts rather than the only value that people give to it. But for the next 5–6 years Bitcoins will remain as the major player.
If you want to know more about supply and demand, read my article “Diamond vs Water – What do you wanna be?” on pulse.
Resources to get started with Blockchain Technology
Must haves in your collection (Even if Blockchain technology is just a hobby for you)
- Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World
- The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology
- Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics
- Learn Blockchain technology free of cost