Bitcoin is the fastest-growing cryptocurrency and we often looked at it as one of the top sources of cryptocurrency. But still many people don’t know much about Bitcoin, in this article, we will discuss bitcoin how it works and what are the factors that influence the price of bitcoin.
What is Bitcoin?
Bitcoin is the form of a cryptocurrency that is highly in demand in the modern era. It is also speculated that this is the future of the world currency as all hard currency of today’s world will be replaced by these cryptocurrencies. Now, if we talk about bitcoin it is developed in 2009 by Satoshi Nakamoto a name given to the creators of virtual currency. The transactions of bitcoin are always recorded on a blockchain that shows the transaction history and proves the ownership of each and every unit.
One thing, that is really important to understand here is that bitcoin or any other cryptocurrency is never issued by central banks and they also don’t have any kind of backup from the government as well like all other traditional currencies, and also this is a very different concept from bonds and shares purchasing because it is not firm or MNC, so that’s why balance sheets are also not available in bitcoin.
The Factors Influence The Price Of Bitcoin
As earlier mentioned in the article, bitcoin is never issued by central banks and they also don’t have any kind of backup from the government as well like all other traditional currencies due to the price of bitcoin is not affected by the nation’s economic growth, poverty rate, or inflation rate. So what does influence the price of bitcoin? There are several factors that determine the price of bitcoin and all of them will be discussed in the following paragraph –
Supply and Demand Of Bitcoin
The price of Bitcoin lies on the market demand as well as the supply of bitcoin. We often see that if the demand for a product is higher and supply is not sufficient then its price always goes upward and in the case of bitcoin this is the exact scenario as The cryptocurrency’s protocol only allows new bitcoins to be created at a fixed rate, and that rate is designed to slow down over time. Thus, the supply of Bitcoin slowed from 6.9% in 2016 to 4.4% in 2017 and 4% in 2018.The production cost of Bitcoin through the mining process
For bitcoin, the cost of production is roughly a sum of the direct fixed costs for infrastructure and electricity required to mine the cryptocurrency and an indirect cost related to the difficulty level of its algorithm. Bitcoin mining consists of miners competing to solve a complex math problem—the first miner to do so wins a reward of newly minted bitcoins and any transaction fees that have accumulated since the last block was found.
Regulations governing its sale and use
The more governments around the world incorporate bitcoin into their economies and markets, the greater its chances of becoming a legitimate asset class for investment. Cryptocurrency investors and traders follow regulatory developments related to Bitcoin closely because it is an indicator of liquidity in crypto markets. These developments exert pressure on its price because they affect its supply and demand.
For example, China’s moves to ban bitcoin trading and limit operations of bitcoin-mining infrastructure affect the cryptocurrency’s supply and demand.
The state of its internal governance News developments
Bitcoin’s nascent ecosystem means that news developments have a direct impact on its price. These developments can be of various types.
Bitcoin’s governance policies, which are set by a group of core developers, also affect its price. Protocol modifications that alter the number of bitcoin in existence or philosophical disagreements among developers about the cryptocurrency’s future direction are closely watched investor indicators.