What is a Bitcoin worth?

Thomas Belsham in Bank Underground:

The price of Bitcoin is currently around $57,000 (see Chart 1). But what is the price of Bitcoin based on? It’s just a bunch of code that exists only in cyberspace. It’s not backed by the state. There’s no recourse to a central authority. There’s no underlying asset, no stream of income. There’s just the thing itself. But does that mean it has no inherent worth? The code on which Bitcoin is based does give it scarcity value. Only 21 million Bitcoin will ever be created. And that might be worth something. That scarcity is why some people refer to Bitcoin as ‘digital gold’. But the very scarcity on which Bitcoin is based might also be its undoing. Its scarcity may even, ultimately, render Bitcoin worthless.

Chart 1: Bitcoin price in US dollars

Source: Blockchain.com

Satoshi Nakamoto said in his/her/their (the creator or creators remain anonymous) canonical paper, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, that ‘a peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution’. This was the driving force behind Bitcoin: create a payments system outside of the existing official financial architecture – a form of digital money, with no official entity standing behind it, just the strength of the underlying computer code.

Now, so far, Bitcoin has not performed well as money. Quick recap: money issued by central banks, fiat money, acts as a ‘store of value’ – it preserves the spending power of income and wealth, so that you can be confident that a pound, say, will buy about as much in a year’s time as it would today. It’s also a medium of exchange – you can use it as payment. And, largely by dint of satisfying those two criteria, the denomination of money – be it in the form of dollars, pounds, seashells, whatever – tends also to be used as a unit of account (a means of pricing other things in general).

More here.