There is often a perception that Bitcoin cannot be used as currency because it is not backed by anything. But this is fundamentally wrong. This article will deal with this and understand why Bitcoin is worth something.
What Bitcoin Is Backed By
A backed or secured currency is one that can be exchanged for a predetermined amount of another asset. The most common assets for backing are gold and silver. They are considered trustworthy assets and are rare; over thousands of years of history, they have proven their ability to hold value.
A backed currency can also be backed by another currency, making it pegged. This is the principle on which some stablecoins work: USDT, USDC, and BUSD. In this case, there is a guarantee that it will always be worth at least as much as it can be exchanged for.
Fiat currency is a government-issued currency. Its value is set and secured only by the government and is not backed by gold or any other currency.
Bitcoin is not backed by any assets because it is not controlled by any outside person or entity. However, the lack of backing does not mean Bitcoin has no value. Most currencies are unsupported, even though they are used every day around the world. Fiat finds its footing in government and in people’s faith in the stability of the government. If faith falters, fiat currency devalues as citizens and foreign governments try to exchange it for more stable assets.
Bitcoin’s value is demand-driven, it does not follow the monetary policy of any government, and its value is not based on any other asset. In addition, the limited supply of 21 million coins makes Bitcoin a deflationary asset and protects it from hyperinflation. It becomes a reliable long-term store of value, comparable and in some cases superior to gold.
Bitcoin is valued because anyone can check the number of Bitcoins in circulation, as well as make sure that the rules of the network are being followed and that the coins in circulation are genuine. It can be said that it is backed up by numerous miners with their work to keep the network running, which consumes a great deal of energy and money.
How the Price of Bitcoin Is Determined
Supply and demand have a role in determining the price of Bitcoin; when demand for Bitcoin rises, so does the price. Prices decrease as demand declines. However, unlike conventional currencies, the production of Bitcoin is independent of its demand.
Production rises in response to rising demand for most commodities, including gold and fiat money, which causes prices to stabilize. However, because of a complexity adjustment, the output of Bitcoin does not increase as demand grows.
Fiat currency can be created and used indefinitely, and its growth is unpredictable, making it difficult to calculate its inflation rate. Although a small committee can always adjust these rates, most central banks strive for a relatively low inflation rate.
Because new Bitcoins are generated in accordance with a predetermined schedule, the inflation rate of Bitcoin is known in advance.
This causes demand to outstrip supply and puts pressure on the price and it goes up. Due to limited supply and a relatively small market capitalization, the Bitcoin price is also much more sensitive to changes in demand, resulting in increased price volatility. Interestingly, the Bitcoin price is closely related to halving.
Bitcoin’s supply is limited. For successfully finding the next block, miners receive a reward that incentivizes them to keep mining blocks. The reward is reduced every 210,000 blocks, and since the average time to find a block is 10 minutes, the reward is halved about every four years. This is halving; its mechanism was designed and implemented by Satoshi Nakamoto.
When Bitcoin was first mined in 2009, mining one block yielded 50 BTC. On November 28, 2012, there was a first cut to 25 BTC, followed by a second halving on July 9, 2016, reducing the reward to 12.5 BTC. The third and final cut to date was May 11, 2020, which reduced Bitcoin issuance from 12.5 BTC to 6.25 BTC per block. This process will continue until about 2140 when the 34th cut will reduce the reward for the final Bitcoin block from 0.00000001 BTC to 0.
It is believed that when the reward per block becomes too small, transaction fees will become the main income for miners. And while critics believe this will be economically untenable, Bitcoin supporters argue that advances in batch transaction processing and other second-tier technologies will likely eliminate this problem.
To track exactly when this halving will happen, you can refer to the Bitcoin clock, which updates this information in real time.
As for halving and market price, proponents of the S2F model believe that the reduction has a positive effect on price. They argue that as long as buyer demand remains at pre-cut halving levels, the price should rise because half as many new Bitcoins from miners enter the open market.
This lower inflation rate increases the shortage and, as a result, contributes to the price. Others believe that even if miners mine fewer and fewer Bitcoins, that does not mean that aggregate open market sales will be reduced. These are all theories, but as we can already see: along with halving the price of Bitcoin grows.
Conclusions – Bitcoin Price and Crypto Casinos
The influence of Bitcoin price on crypto casinos is multifaceted, as it impacts both the business and user experience. Crypto casinos primarily operate using cryptocurrencies like Bitcoin, which are known for their price volatility. The fluctuations in Bitcoin price can lead to changes in the value of bets, winnings, and even the casino’s overall revenue.
When the price of Bitcoin surges, it often attracts more players to crypto casinos due to the increased value of their holdings. This heightened interest can boost the casinos’ customer base and revenue, as users aim to capitalize on their assets’ appreciation. Additionally, a rising Bitcoin price can enhance the appeal of crypto casinos over traditional fiat-based platforms, driving further growth.
Conversely, a decline in Bitcoin price can deter potential players and lead to lower casino revenues. In such scenarios, crypto casino operators may need to adapt their marketing strategies or offer more enticing incentives to attract and retain customers.
Ultimately, the influence of Bitcoin price on crypto casinos demonstrates the importance of market dynamics and user behavior in shaping the industry. Casino operators must remain agile and responsive to these changes to ensure they can thrive in the rapidly evolving cryptocurrency landscape.