What Gives It Value? What is Backing It?

Bitcoin's value comes from its unique combination of scarcity, security, and utility, similar to how gold or collectibles hold value because they are limited, useful, and people trust their worth. There are only 21 million Bitcoins, making them scarce like precious metals, which some people see as a hedge against inflation.

And while no physical asset directly backs Bitcoin, its security and value stem from the combined power of thousands of computers verifying transactions and maintaining the blockchain—a process known as decentralization. Think about it like this: we’re all familiar with the trust we place in our digital bank accounts. When you receive a paycheck through direct deposit, buy groceries by tapping your card, or pay bills online, you’re depending on a digital record of your money, not physical cash. Bitcoin, as a digital asset, works similarly but operates on an open network without a central authority, relying on secure, consensus-driven technology to confirm ownership and transactions.

Bitcoin’s value ultimately depends on this trust, along with the power of its network, made secure by thousands of independent computers working together. And this trust is growing beyond individual users. Major institutions are fueling adoption, with the recent release of Bitcoin ETFs in the U.S. by companies like BlackRock and Fidelity, enabling more traditional investors to access Bitcoin easily. Larry Fink, BlackRock’s CEO, called these ETFs the ‘first step’ in a larger technological shift in finance, with the ‘second step’ being the tokenization of all financial assets—essentially moving everything to digital assets with verifiable ownership on a blockchain.

As adoption grows, the value of Bitcoin’s network follows Metcalfe’s Law, which states that the value of a network grows exponentially with each new user. Just as the internet gained value as more people came online, Bitcoin’s security and utility increase with every new participant, whether an individual user, financial firm, or major bank. This expanding network not only boosts Bitcoin’s security but also its long-term value, as the technology and investor trust supporting it continue to grow.

In contrast, fiat currency—like the U.S. dollar or the Canadian dollar—derives its value not from a physical asset but from the combined influence of central banks and government policy, which work together to maintain economic stability and public trust. Historically, national currencies were backed by gold, meaning each unit of currency could be exchanged for a certain amount of gold. However, since most countries abandoned the gold standard, fiat money no longer has any tangible backing. Today, central banks like the Federal Reserve and Bank of Canada control monetary policy, adjusting interest rates and money supply to influence inflation, while governments manage fiscal policy, including spending and taxation. This system allows for economic flexibility but can lead to inflation, which decreases purchasing power over time. Bitcoin, by contrast, has a fixed supply of 21 million coins, creating a deflationary structure that many view as a hedge against inflation. This finite supply, along with growing trust and adoption, contributes to Bitcoin’s unique value as an asset.