Bitcoin

Why Is Bitcoin So Expensive? (Top 10 Reasons)

Gold Bitcoin crypto currency

Reading: Why is bitcoin so expensive

Bitcoin is a cryptocurrency that is nothing more than a computer code that has been on the financial scene since 2009.

Some consider it a risky investment because it doesn’t use the same traditional tools normally used to select an investment.

can be considered as a completely new way of trading.

however, it is currently very expensive.

here are ten reasons for this.

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why is bitcoin so expensive? (top 10 reasons)

Reading: Why is bitcoin so expensive

1. marginal cost of production

Bitcoins on smartphone

Reading: Why is bitcoin so expensive

Bitcoin transactions are documented on what is known as the blockchain.

This is a type of distributed database that has common computer network nodes and is very expensive to operate when used as a cryptocurrency.

exists as a digital format that stores electronic information of any variety, but is most commonly used for transactions, much like a ledger is used in a bank.

Blockchains play one of the most important roles in cryptocurrency systems.

without them, bitcoin could not exist.

its main function is to work to maintain records of transactions that are not controlled by any bank, individual or group of individuals.

This ensures the security and fidelity of data records and builds trust among your users for each transaction without the need for third-party verification.

Typically, a database uses tables to classify and structure electronic data.

However, a blockchain structures it into blocks that are linked together electronically.

all new data is put into a new block until the block reaches its maximum capacity.

This strings information together in chronological order, creating a decentralized and irreversible data timeline.

again, decentralization in this context means that no one person or group, such as a bank, can control any transaction.

When a block becomes full, it becomes an irreversible part of this blockchain timeline and is assigned an exact timestamp.

A blockchain is part of the bitcoin production process, and due to its structure, it is difficult to implement, which increases production costs.

Bitcoin production costs play an important role in determining the price of the cryptocurrency.

Research shows that its price on crypto markets correlates closely with its marginal cost of production.

In economic terms, this reflects changes in total production costs that come from producing or manufacturing an additional unit.

In other words, a firm can earn maximum profits when its output reaches the point where marginal revenues and marginal costs equal each other.

Reading: Why is bitcoin so expensive

marginal costs

Marginal costs help a financial or other organization to optimize its production rates through economies of scale.

This is a crucial concept used in management accounting.

Economic models show that these marginal costs play a crucial role in determining bitcoin prices, challenging recent claims that the cryptocurrency is virtually worthless.

Even as markets price the cryptocurrency in the thousands of dollars each range, its valuation remains strong.

The data shows that price bubbles can appear from time to time in the bitcoin market, but instead of collapsing to zero, they tend to close each time.

bitcoin has fixed and variable costs.

fixed costs are those that remain constant, regardless of the company’s production levels.

These include block maintenance, mining, and other operating expenses.

thus, more production leads to lower fixed costs per unit, because the total is divided by additional units.

on the other hand, variable costs change according to the production levels of the company.

In other words, the more a company produces, the higher the variable costs.

Reading: Why is bitcoin so expensive

2. bitcoin mining and electricity use

Bitcoin and cryptocurrency miner - a mining computer. Close-up on several GPU

Reading: Why is bitcoin so expensive

Bitcoin mining is the process by which metaphorical miners use computer systems with special chips to solve various mathematical puzzles.

miners use huge implements and massive machines to solve the mathematical puzzles generated by bitcoin’s algorithms to produce more bitcoins.

This operation requires a lot of electricity to run.

The power that runs a bitcoin mining system typically runs 24/7, which can lead to a huge electricity bill.

This process uses as much or more electricity than some entire countries, so the costs can be monumental.

mining is a necessary part of maintaining the very book of transactions that comprises bitcoin’s existence.

expenditure comes into play due to the controversial energy consumption that is consumed.

environmentalists have taken up arms because they claim it harms the environment.

Due to its monumental expense, power consumption plays a role in why bitcoin is so expensive.

Reading: Why is bitcoin so expensive

3. miner fees and rewards

Cropped shot of young computer engineer

Reading: Why is bitcoin so expensive

the cost of bitcoin is higher due to miner fees and various rewards that are promised to bitcoin miners as incentives to participate in the mining process.

In addition, they receive fees for all translations contained in a transaction block they have discovered.

the job of bitcoin miners is to confirm and secure monetary transactions by adding new blocks to the blockchain (or groups of transactions).

then it becomes a shared public record.

no transaction becomes final until it has been added.

miners are paid a fee for this service.

See also: Bitcoin crashes below 30k as crypto market enters ‘freefall’ | JOE.co.uk

miners assure investors that monetary transactions using bitcoin are confirmed in a timely manner.

Without these fees, a given transaction can take days or even weeks to confirm.

In fact, the network might reject the transaction entirely and return the funds unless a miner’s fee is used.

miner rewards and fees are incentives for miners to participate in the bitcoin system.

This is in addition to the expenses incurred by people using bitcoin.

As the cryptocurrency reaches its cap of $21 million, which is expected to take place in the year 2140, miners will be rewarded with transaction processing fees paid by network users.

These fees ensure miners still have the incentive to mine and keep the network running.

The idea is that competition for these fees will keep them low after the halving events are over.

Reading: Why is bitcoin so expensive

4. mining systems

ASIC mining equipment on stand racks mine cryptocurrency in steel container

Reading: Why is bitcoin so expensive

mining systems add considerable cost to the bitcoin phenomenon.

desktop computers or gaming systems lack the efficiency to mine bitcoins.

The mining process can heat up these systems and cause bandwidth issues on home networks.

asic (application-specific embedded chip) systems exist as custom computers for mining bitcoins and are the main infrastructure investment for bitcoin miners.

These machines can cost between $4,000 and $12,000 and yet an asic system doesn’t even generate a full bitcoin.

hence, miners organize thousands of these machines into groups that run non-stop, generating the hexadecimal number 64 needed to solve a bitcoin hash puzzle.

Reading: Why is bitcoin so expensive

5. bitcoin network infrastructure

Close up view of arranged bitcoins

Reading: Why is bitcoin so expensive

Another expense related to bitcoin is its network infrastructure.

bitcoin network infrastructures involve expensive internet connections that must always be available, 24/7.

they cannot work properly if they have any interruption.

all network connections need latency from other mining pools that are nearby and making this possible is a costly endeavor.

These dedicated networks serve the purpose of reducing dependence on external sources and ensuring that latency is minimized.

Even when a network goes offline, transactions are continually synchronized, which is a slow process that makes the system error-prone after a connection is restored.

Fixing these errors is also expensive, as computer engineers must be hired to do so, making bitcoins more expensive.

Reading: Why is bitcoin so expensive

6. supply and demand

demand and supply concept

Reading: Why is bitcoin so expensive

Anything considered valuable will lose that value if it is produced in unlimited quantities.

A valid reason bitcoin is so expensive lies in its limited quantities.

It’s about supply and demand.

If an asset is in short supply, but demand for it is high, the price will almost always rise.

however, if the supply is greater than the demand for that asset, a drop in price occurs.

A good example of this was the cost of gold in the late 1960s.

At the time, there was less demand for gold than it is now, costing around $40 an ounce.

Today, the demand is much higher and the supply has remained the same, so the price has risen to $1975.

the supply of bitcoin has been capped at $21 million.

There will never be an amount greater than that.

is not extracted or augmented.

The opposite is true.

according to estimates from two years ago, with 18 btc in existence, a portion of the coins are actually obsolete (i.e. dead).

A considerable amount of btc was stolen in various hacks and acts of theft.

People who want to increase the value of bitcoin can buy and hold bitcoin and can increase its demand.

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7. people think bitcoin is expensive

Close up view of arranged golden bitcoins

Reading: Why is bitcoin so expensive

This may sound like a strange reason why bitcoin is expensive, but it’s true that its value is partially determined by the fact that people think it’s worth a lot.

Bitcoin buyers believe that one day bitcoin will be worth much more than it is today, and therefore they will be willing to pay more for it.

This is the same economic phenomenon that caused the value of gold to rise from a reasonable $45 an ounce to the more than $1,000 it costs today.

Any type of currency is valuable simply because people think so, and because the country or society where it exists has decided to use it as a means of exchange that symbolizes something else.

has no inherent value of its own as it is simply computer code.

When the gold standard existed, it required that each dollar be backed by an amount of gold of equal value.

Today, the US dollar is not backed by gold or any other commodity.

It has value because society accepts that it has value.

for example, you can take a $10 bill to a store and spend it on groceries.

In doing so, you invest your effort, your time, and you have items to take home, but the piece of paper on which the $10 symbol is printed has no inherent value.

The same goes for bitcoin.

Reading: Why is bitcoin so expensive

8. transaction fees

Selective focus of silver bitcoin

Reading: Why is bitcoin so expensive

See also: Bitcoin Future Review 2022: Details, Pricing, & Features

Another factor that makes bitcoin so expensive is the fact that in order to validate a transaction using this type of cryptocurrency, a hefty transaction fee must be paid.

fee amount is measured by the average fee in US dollars when a bitcoin miner processes and confirms a cryptocurrency transaction.

These fees may increase when operating on a congested network.

this was in 2017 when cryptocurrencies were booming and fees were reaching almost $60 per transaction.

transaction fees for bitcoin are currently 2,141, which is an increase from 1,575 and a decrease from 7,365 a year ago.

This means a change of almost 35.93% compared to yesterday and -70.94% compared to the 2021 figures.

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9. bitcoin is decentralized

Golden bitcoins on grey

Reading: Why is bitcoin so expensive

the decentralization of bitcoin is one of its most important aspects, but this also makes it more expensive than other types of monetary transactions.

decentralization is an expensive feature of bitcoin because blockchains that are willing to compromise it can offer bitcoin users a better range of functionality.

so users are charged more to implement it.

Without decentralization, bitcoin would lose one of its most attractive and important characteristics: the quality of being resistant to censorship or used without permission.

These things allow anyone to use the bitcoin network and are highly prized assets that command a premium price.

The main point of a decentralized cryptocurrency blockchain is to provide an immutable ledger with non-discriminatory participation.

decentralization is the only method to achieve a network that has these qualities.

The danger is that this type of network can be used in a nefarious way, such as in money laundering, and that, by its nature, cannot be regulated.

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10. limited acceptance

Bitcoin ATM

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Although bitcoin is accepted by a growing number of businesses, it is still not universally accepted.

In fact, most stores still don’t accept it.

once it is, according to economists, it will be less expensive.

However, for now, many people are still unaware that it exists, even though its acceptance in business practices is growing every day.

Creating a bitcoin payment workflow requires costly and time-consuming technological prowess.

This expense is reflected in the cost of the cryptocurrency.

although businesses have quick ways to start accepting crypto payments.

Companies must submit information about themselves in the bitcoin request.

This removes the bitcoin aspect of anonymity and is one of the reasons more companies don’t participate.

This keeps prices high.

The volatility of the bitcoins that are in circulation and the number of companies that use them are comparatively very small compared to what is projected to be one day.

This makes it possible for small events, trading activities and business operations to significantly affect their prices, which can rise overnight in some circumstances.

Part of the limited acceptance of the cryptocurrency is based on the fact that the software that powers the world of bitcoin is still in beta mode and has many features that are incomplete.

not functions but services, advertising tools are being developed to make cryptocurrency more accessible and secure, but some of them are not yet available to the public.

Most of the companies that trade bitcoins are new and do not offer any insurance.

Bitcoin is still in the process of maturing and, until then, makes its buyers incur expenses that they probably won’t have to incur later.

businesses that accept bitcoin must pay extra to trust a cloud system, like xero or quickbooks, and need to hire accountants to be able to determine if crypto payment software tools integrate with it.

Cryptocurrency is riddled with additional expenses that some companies might not want to take on, keeping prices higher for investors.

There are also potentially costly tax implications, especially for any business hoping to keep any of the cryptocurrency received.

Another consideration for businesses considering acceptance of bitcoin is how their accountants access information from merchant outlets.

some involve expensive rework, and while it might be a one-time charge, it’s not cheap.

Reading: Why is bitcoin so expensive

other ways bitcoin could end up costing you more money

Selective focus of various bitcoins

Reading: Why is bitcoin so expensive

Bitcoin does not offer any type of consumer protection, such as insurance.

This means that in its attempt to free people to transact on their own terms, certain security issues may not be acceptable to all bitcoin participants.

There is a possibility that private insurance services could be developed for this service and they will not come without high price tags, and it is not clear if they will be available at all.

Unlike US dollars, bitcoin does not have any protective government regulations.

This cryptocurrency is a completely unregulated entity.

transactions are not legally protected, and it is difficult, if not impossible, to rectify any type of third party misconduct that may occur in any third party transaction.

That means bitcoin users could unexpectedly lose their investments to issues otherwise covered by government regulatory systems.

Also, there is no guarantee of any kind of minimum bitcoin valuation.

therefore, if a large group of investors decide to withdraw their use of bitcoins and then choose to sell them, the value could suddenly decline by significant amounts without warning.

This would be especially detrimental to users who hold large amounts of cryptocurrencies.

Another possibility of losing money with bitcoin lies in the fact that all transactions are irreversible.

This can be detrimental to consumers by virtue of the fact that all transactions are unregulated, anonymous and lack security.

every transaction that is made is permanent.

This means that if something goes wrong, there is no regulatory entity that can reverse the situation.

This can put investors at risk of losing their entire investment if they lose access to their private key.

In the event of a hard drive crash or logs corrupted by a virus, it is possible to lose access to funds or disappear completely in a matter of minutes.

Reading: Why is bitcoin so expensive

references

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