Bitcoin has, for the first time, created digital scarcity without having a trusted central intermediary backing it.
This is according to FirstRand’s Blockchain Lead Farzam Ehsani, who was discussing Bitcoin on BusinessDay TV.
Ehsani said that with the Internet, you can send someone a picture or other information, and retain a copy for yourself.
This means it has been challenging to create a valuable digital token, because a user can simply make infinite copies – which devalue the token due to a lack of scarcity.
“For the first time with Bitcoin, we have only 21 million Bitcoins which will ever be produced, which does not rely on any trusted intermediary,” said Ehsani.
This scarcity and the growing demand for Bitcoin has seen the cryptocurrency’s value increase to over $6,000 in recent weeks.
Why Bitcoin is valuable
Ehsani said that for something to be valuable, it must be scarce and it needs to have utility.
“The reason why air is not valuable, although it is very important to us, is because it is not perceived to be scarce,” he said.
Bitcoin has scarcity, because of the 21 million Bitcoin limitation which is built into the system.
It also has utility, because it makes it possible to send anyone in the world Bitcoin very fast, and at a fraction of the cost of using traditional banking platforms.
While its enormous growth is attracting interest from investors, Ehsani advises a healthy dose of scepticism before putting money into Bitcoin.
However, he encourages people to think about what impact Bitcoin can have on the world.
“For the first time in a very long time, the very nature of what money is, is changing,” said Ehsani.
Simon Brown from Just One Lap sees Bitcoin as an “alternative investment”, and likened it to gold and exotic art.
Brown highlighted that Bitcoin is not a store of wealth, and follows market movements related to world events fairly closely.