Cryptocurrencies are one of today’s hottest asset classes. Their prices have soared from pennies to thousands of dollars per unit in just over a decade. But what gives these digital assets their value? And can the market sustain this price surge, or is it a bubble like the Dotcom or tulip manias of the past? This article will explore how to think about the intrinsic value of cryptos and why this value is so important to understand.

Bits

A bit is a small unit, or a crypto bit of a Bitcoin. Bitcoins are often split into even smaller units called satoshis, and one Bitcoin is made up of 100,000,000 satoshis. Bitcoins are also divided into even more granular amounts, which are referred to as bits. This enables people to more easily track their Bitcoin balance and facilitates microtransactions with the currency.

What Are Crypto Bits? An Introduction

This granularity is also important for allowing Bitcoin to become a widely used medium of exchange. Traditionally, money has come in the form of precious metals or fiat currencies. But cryptocurrencies represent a new paradigm for money that eliminates centralized intermediaries, and instead relies on a decentralized network to verify transactions. This is intended to improve trust and reduce the risk of a financial collapse caused by a single institution.

A cryptocurrency’s price volatility can be attributed to the law of supply and demand. If a cryptocurrency is in short supply but has high demand it can drive up its price, as sellers compete for buyers. However, large fluctuations in the price of cryptocurrencies can make them difficult to use as a store of value.