A crypto-currency such as bitcoin only has value if it is considered as a currency by all participants in the monetary system. It therefore needs to be rare, in the sense that it cannot be easily copied (problem equivalent to that of counterfeit banknotes, for traditional currencies).
In addition to this value linked to acceptance, bitcoin has value through various economic mechanisms linked to the analysis of supply and demand for bitcoin_s_.
Issuance of currency in the primary market
Each mined block generates bitcoins. It is expected that the amount per mined block will be halved every 210,000 blocks to arrive at a total of bitcoin_s_ in circulation (excluding those lost) of 21 million. This monetary rule is controlled by a modifiable protocol by the Bitcoin Foundation consortium , as we will see later. The monetary rule can therefore be changed to respond to fluctuating market conditions, at the risk of a hard fork .
Electricity represents the main component (over 90% according to current estimates) of the total cost of a mining farm. In 2015, Böhme et al. (2015) estimated the consumption of the _bitcoin_ network at more than 173 megawatts of electricity on a continuous basis. This represented about 20% of the production of a nuclear plant and an amount of 178 million dollars annually (at the price of residential electricity in the United States). This amount may seem large, but Pierre Noizat estimates that it is no more than the annual electricity cost of a network of ATMs (cash machines) worldwide, estimated at 400 megawatts.. If we include the cost of manufacturing and putting money and bank payment cards into circulation, the electricity cost of the Bitcoin network should be put into perspective.
There is indeed a negative externality of mining: each miner, when he invests in new hardware, increases his marginal revenue, but it also increases the overall cost of mining, because the difficulty increases with the number of miners and with their capacities. calculation (hash-power).
Thus, for the bitcoin network, the difficulty of the cryptography problem to be solved validated by a proof-of-work consensus increases with the overall hash-power of the network. There is therefore a risk of overinvestment in mining capacity, as individual miners do not take into account the negative effect on the entire network.
It is important to point out that increasing the difficulty of mining reduces the incentives to mine and increases the verification time, and therefore the very efficiency of the blockchain. This mechanism is reminiscent of the tragedy of the commons where shared resources (here hash -power ) wither away and are only maintained by a handful of farms and pools, thereby nullifying the very principle of the public blockchain, which is intended to be decentralized.
This trend is already noticeable today.
In the end, the supply of bitcoins and therefore the creation of money on the primary market depends on the cost of electricity and the difficulty associated with the mining process as well as governance rules relating to the amount of Bitcoin generated per mined block.
The value of bitcoin in the secondary market
The value of bitcoin is then closer to that of a financial investment whose players anticipate the prospects of gains and factors that may lead to an appreciation of bitcoin.
The demand for cryptocurrency stems from several user concerns which we detail below starting with the positives and ending with the risks.
Cash is the only 100% anonymous means of payment . Bitcoin and other cryptocurrencies come in second place. Indeed, the pseudonym system used by the bitcoin protocol makes it possible to hide the identity of people carrying out transactions. In addition, some cryptocurrencies, such as Zcash, go further and hide all the metadata of a transaction.
Why use an anonymous payment method?
First, the use of a means of payment avoids leaving traces which can be used for surveillance purposes by the State, employers and certain companies (in particular banks and insurance companies) . Thus, companies and banks practice price discrimination strategies that can sometimes backfire on consumers. Leaving traces through payment can also lead companies to solicit more customers on new commercial offers and the distribution of targeted advertisements which may be considered a nuisance by some.
