There are a lot of different rumors, hearsays and myths about Bitcoin , so that its reputation is still uncertain. Most people take this asset as a financial pyramid in justifying that it isn’t proved physically. Let’s deal with it in more detail.

Contents

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1. Is Bitcoin a pyramid scheme?

First, let’s discover what financial pyramid really means. Well, a financial pyramid implies profit received from membership fees of new users to earlier participants. You have a great possibility to gain money in such scheme if only you are a founder or a co-founder of this project. According to the law of large numbers, sooner or later the schemes like this are doomed to failure.

Now, let’s discuss the market value laws, due to which Bitcoin’s price forms. If demand exceeds supply, the Bitcoin’s price is grows, if conversely, and the quantity of sellers is more than buyers, the currency falls.The price of any asset works in this way . For example: natural resources, wheat, precious metals, stocks, etc. So, accordingly, we can surely say that Bitcoin is not a financial pyramid.

2. What is Bitcoin backed by?

To deal with this question, first we should understand what “backed up asset” means. Let’s draw an analogy with the most liquid asset in the world, now it’s the USD. This is a fiat currency of one of the most developed country in the world. Its emission is fully controlled by the US Central Bank. At the dawn of its history, the USD was supported by official reserve assets, but it wasn’t for a long time, from the 1950s, when dollar became an international economic currency, its linking to gold disappeared. Nowadays dollar is supported only by people’s faith in stability of American economy, but in no way by something physical.

The next example will help us to understand the pricing on physical objects, such as: gold, platinum, etc. So, what factors have the impact on the price of, for example, gold?

Production cost

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Limitation

Not for nothing, Bitcoin is often compared with gold, actually, these two assets have a lot in common.

1. Cryptocurrency also can be mined and this process has its own cost price. For mining one Bitcoin X kilowatts of electricity are required. Every year the difficulty of mining is growing, that leads to increase of prime cost of mining

2. Bitcoin’s value is made up of easy storing and transfer of funds directly from one user to another without involvement of mediators. It’s impossible to close Bitcoin’s chain,to do it, all participants’ computers all around the world should be turned off.

3. Don’t forget that emission of the coins is strictly limited to 21 million, that’s why the popularization of Bitcoin may inevitably increase its rate.

But, most of all Bitcoin is supported by faith in it by a lot of people all over the world. Most cryptocurrency investors are sure that in the nearest 3-5-10 years the digital coins will become an integral part of world economy.

3. Conclusion

All innovative products, face with some skepticism at the beginning of their history. It’s absolutely normal, because general public can’t take changes immediately. If you understand Bitcoin’s price forming, it will be clear that it’s not a financial pyramid. If you spend five more minutes, it will be obvious that Bitcoin is supported not worse than USA dollar or gold.