Reasons behind the Bitcoin Boom

by Prassenjit Lahiri

How on earth did bitcoin jump from having little to no value to a valuation of $11000? What happened? In just 2 short months between September and November of this year, the value of bitcoin has doubled. But what could account for this digital cryptocurrency tsunami that has hit the financial markets in recent times? While nobody knows for certain what has caused this phenomenon, some valid opinions have been put forth that are worth looking into.

One of the theories about why the bitcoin valuation has skyrocketed so quickly is that the bitcoin adequately addresses the issue of counterfeiting that is associated with traditional currencies. This has been achieved through blockchain technology which allows for anonymous payments between parties in a safe, encrypted format. This technology has effectively eliminated the “fear” surrounding the occurrence of fraud and theft that comes hand in hand with traditional currencies.

But that’s not all that bitcoin has done. It also effectively addresses the issue of inflation which erodes the value of currencies. Since bitcoins are a limited resource with only a finite total available, there is no erosion of value due to inflation. There can be no additional injection of bitcoins into the economy, unlike currencies which can be produced at the will of the various policy makers.

In other words, the bitcoin has solved problems that people believe are worthy of much value. Since the value of a currency is simply based on the perceived value that it offers, the bitcoin’s value has increased according to the perceived value that it presents to the users and traders. As the number of bitcoin transactions completed on an annual basis continues to grow, the possibility of increasing valuation of the bitcoin increases. And the rate at which the perceived value of bitcoin increases is directly related to the market value of bitcoin.

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