Why does Bitcoin have value?

Bitcoin has value in the same way any useful service has value: people want what the service provides. Many people get stuck on the fact that you can’t physically touch Bitcoin and therefore think it’s just something digital with no intrinsic value.

However, society already lives in a world where most of the things we use every day are immaterial and don’t take a physical form. You can’t touch or feel an Instagram account, an email inbox, or a Netflix subscription. Yet all of these things have value, because the service they offer is useful.

The same happens with Bitcoin. Just like an Instagram account, Bitcoin is not something physical. However, it provides a service that anyone can access by holding the asset.

Bitcoin as a Service

One way to understand Bitcoin is to start by thinking of it as a service that people pay to access.

For example, Instagram is a social media service that has value because it allows people to connect with each other, share photos and videos, send messages, and build an audience for their content. Users pay for this service either with money, which gives them access to premium features, or with their data and attention, which allows companies to buy targeted advertising on the platform.

In this way, the value of Meta (the parent company that controls Instagram) depends on how many users want to access the service it provides and how intensely those users want to use the app. If more people want to use Instagram and build their brand there, the company’s value increases. If fewer people want to use Instagram, the company’s value decreases. And if no one wanted to use Instagram, the company’s value would be zero.

Just like Instagram, Bitcoin is fundamentally a network. Therefore, the value of the network rises or falls depending on how many users participate in it. The more people in the world want the service that Bitcoin offers, the more valuable the network and the asset circulating within it become. If no one wanted the service provided by the Bitcoin network, the value of each unit would be zero.

What is the service that Bitcoin offers?

The service that Bitcoin offers is simple but incredibly powerful. Bitcoin allows anyone in the world to store and transfer value in digital form without depending on any government, bank, or other intermediary.

More specifically, Bitcoin offers:

1. Decentralized money: no company or government is able to control it;

2. Peer-to-peer payments: it allows value to be transferred globally, directly to anyone;

3. Censorship resistance: no one can block a valid transaction that follows the rules of the protocol and the network;

4. Self-custody: anyone can be their own bank and hold their own capital without needing permission or registration;

5. Predictable and limited supply: there will only ever be 21 million bitcoins, forever;

In a world where central banks continuously expand the money supply, governments pile up debt without end, and unelected elites seek to introduce CBDCs (central bank digital currencies), tightening control over the population through digital IDs and other forms of surveillance, having a neutral, global and censorship-resistant way to store and move money freely becomes an invaluable service.

Essentially, with Bitcoin anyone can be their own bank and self-custody their savings in a form that no one can stop, inflate, or arbitrarily confiscate, while also being able to freely transfer money to anyone, anywhere in the world.

That is the service people are buying when they acquire Bitcoin.

The Big Difference

With Instagram or any other social network, there is a company behind it providing the service. Each user pays for the service with money or with their data, but the company can unilaterally change how the service works or do so under external pressure, censor its users, or terminate accounts at any time.

With Bitcoin, there is no company behind it, no CEO, no customer support, and no central server where people sign up. In Bitcoin there is no subscription. The only way to access the service that Bitcoin offers is by voluntarily buying and holding the asset that circulates on the open network.

With self-custodied Bitcoin, there is no one you need to ask permission from and no bank to which you have to entrust your Bitcoin. That is what makes Bitcoin so radically different from any traditional digital bank.

Users are what backs Bitcoin

People often ask: “What backs Bitcoin’s value?” Most are used to hearing that something is backed by trust in the government, by gold, or by real estate.

However, if we look closely at modern fiat money (euros, US dollars, etc.), we find that it is not backed by anything tangible. Beyond trust in institutions and in the ability of central banks to create more money so they don’t fail on their commitments, what actually backs fiat money is:

• The rules of the system;
• The institutions and people who enforce those rules;
• And the willingness of people to use it.

Bitcoin is similar, but much more transparent. What backs Bitcoin is the network of users who choose to use and defend the monetary network. These users run nodes, build wallets and apps, invest in mining facilities, educate others, and choose to hold Bitcoin as a form of savings.

And they do this because they want to benefit from the service Bitcoin offers: sovereign, censorship-resistant money.

If we look at the history and growth of social networks, such as Facebook, what the company wanted most at the beginning was users, even if it wasn’t making a profit. Profits would come later, they believed, because the most important thing at first was for the network to exist.

Bitcoin is similar in that respect. It started as a small network, but year after year it continues to attract more users, developers, and miners who see value in the service that the network and the asset provide.

As more people use Bitcoin, the network becomes more secure, liquidity increases (which makes it easier to buy and sell the asset), and the market value of each bitcoin also increases.

Absolute Scarcity Meets Growing Demand

Bitcoin’s absolute scarcity is another important piece of the puzzle. Unlike Instagram, Netflix or Uber, Bitcoin is not just a network or a service. It is also a scarce asset. And here is the essential point: Bitcoin is the only monetary asset where increased demand cannot generate increased supply.

If the whole world wanted more gold and were willing to pay 20,000 dollars per ounce, it would become profitable to dig deeper mines, invest in new extraction technologies, or go after gold in places where it is currently economically unviable.

With Bitcoin, that doesn’t happen. There will only ever be 21 million bitcoins, and no central authority can create more. That limit is enforced by thousands of nodes spread all over the world, which verify every block of transactions and validate the rules, rejecting any attempt to inflate the supply.

Therefore, while demand for Bitcoin as a service can grow as more people join the network, the supply of bitcoins cannot grow to meet that demand. When there is a demand shock, the system does not respond with more production. In fact, the adjustment happens in the price.

This makes Bitcoin’s price discovery dynamics unique. Whenever demand increases significantly, the price rises to the point where some holders decide to sell. In other words, the “new supply” does not come from mines, factories, or printing presses, but from those who already have Bitcoin and are willing to give up part of their position at a certain price. In each cycle, the market tests the level at which current Bitcoin holders are prepared to sell.

There are very few things in life where more demand does not create more supply. One of them is time. No matter how rich you are, you cannot buy more years of life. It is precisely that finiteness that gives value to each day and stops us from postponing everything into the future. Bitcoin brings that same logic to money: just as the inevitability of death gives value to life, the 21-million limit gives value to every satoshi.

Thus, people who buy Bitcoin, beyond seeking financial sovereignty and censorship resistance, also want to hold an absolutely scarce asset that others, very likely, will also want in the future—and for which it will not be possible to create new supply when the world finally wakes up to its importance.

Decentralization and the Quality of Bitcoin’s Service

Many people imagine decentralization as a switch: something is either decentralized or it isn’t. However, decentralization is something that is built over time.

In the early days of the network, Bitcoin was fragile. It was a network with few users, little mining power, and the software was still quite experimental. Over the years, something very important began to happen: more people started running nodes, mining became more competitive and globally distributed, developers reviewed and improved the code, and communities and economies grew around Bitcoin.

Thus, decentralization emerges as a result of the network’s growth. The greater the distribution of nodes, miners, and users, the harder it becomes for any single entity to stop or disrupt the network.

In fact, decentralization is part of Bitcoin’s value. It makes censorship difficult, makes changing the rules without network consensus practically impossible, and increases confidence that the 21 million limit and other rules will be respected and maintained perpetually.

In other words, as Bitcoin grows and decentralization increases, the quality of the service Bitcoin provides improves, and the network becomes more resilient, more trustworthy, and more independent from any country, entity, company, or user group. With all this, the integrity of the distributed database that determines who owns what is strengthened.

Ultimately, money is information, and the more secure that information is, the more people choose it and the more valuable it becomes.

Conclusion

A large part of money already exists only as numbers in databases, governments face structural debts and are tempted to inflate currencies, financial surveillance and control are becoming easier and cheaper, and programmable money in the form of CBDCs can be used to control what each person buys at any time and in any place.

In this context, a neutral, open, voluntary monetary network, where you don’t need to ask anyone for permission and which anyone can join, is no longer just a curiosity. In fact, it is protection against government control and a tool for individual sovereignty.

Bitcoin guarantees, at the protocol level, the right to save and transact with anyone, anywhere, as long as the rules of the network are followed and respected. No bank manager, regulator, or politician is able to override this arbitrarily.

That is the service that Bitcoin, as a network and an asset, offers. That is why people are willing to pay to hold the asset, and that is why Bitcoin has value.