Bitcoin made history at the end of January when it surpassed $100,000 for the first time. That didn’t last long but was driven in large part by the limit on the number of bitcoins that can be mined. That scarcity drives demand and has been part of what’s behind Bitcoin’s rallies of late. But it isn’t the only thing that moves the price of Bitcoin. The legal, social and economic aspects all play different roles in the price movements.
Bitcoin operates on a proof-of-work blockchain. Miners use powerful computers to solve complex puzzles. This process validates transactions and secures the network. In the U.S., these mining activities are treated like traditional commodities, similar to farming or mining for precious metals. This legal framework supports the legitimacy and durability of Bitcoin.
Social dynamics add another exciting layer. Anybody can mine Bitcoin if they are willing to invest the necessary resources. This open competition builds trust in the system. It makes Bitcoin less vulnerable to fraud and manipulation. Participants find comfort in a network where fairness is built into the process.
The link between proof-of-work and the real economy is also strong. …
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