What determines the price of 1 bitcoin?

Introduction

Bitcoin is the first decentralized digital currency, and its price has been trending upward since the beginning. Today, it's not uncommon to hear about Bitcoin valuations reaching new heights and investors purchasing large amounts of bitcoin. But how do we determine this value? What factors affect the price of one bitcoin? Below are some of them:

Supply and Demand

Supply and demand is a basic economic principle that explains how prices are determined.

Supply is the amount of something available in the market, while demand is how much of something people want. If there's more supply than demand, then the price goes down; if there's less supply than demand, then it goes up.

Network Hash Rate (total computing power of all machines mining bitcoin)

The amount of computing power required to mine bitcoin is directly related to the network hash rate. The more miners there are, the harder it is for someone new to enter the market and start mining right away. This means that if you have a high-powered computer with lots of RAM and CPU power, you can use it as an effective miner while others wait around their own equipment until they get enough shares (or coins) so they can sell them on exchanges like Coinbase or Bitstamp.

Trends

The price of bitcoin is determined by the following factors:

• Demand. The more people want to use bitcoin, the more valuable it becomes.
• Supply. The number of bitcoins in circulation is limited to 21 million, which makes up a small percentage of all possible bitcoin values (the supply). This means that there are always going to be some new bitcoins entering into circulation each day as people buy them or sell them for cash or other cryptocurrencies like Ethereum or Litecoin.

Bitcoin network difficulty - more miners, more difficult to find coins

The difficulty is a measure of how hard it is to find a new block. The more miners there are, the harder it will be for you to find blocks. But this doesn't mean that your coins are worth less; if there are more miners on your network, then their collective hashing power will also increase and make finding blocks easier for everyone else.

The difficulty adjusts every 2,016 blocks (roughly every two weeks). The last adjustment happened on November 14th at 09:20 UTC (1:20 PM EST).

Mining difficulty and volume help determine the price of Bitcoin

The difficulty and volume of bitcoin mining explain why the price of bitcoin changes over time.

In order to mine a block, miners must compete with other miners by solving complex math puzzles. In order to be successful at this task, they need specialized hardware that can execute these computations quickly enough (miners use ASICs). The more powerful the ASICs become, the harder it is for any one miner alone to find an effective solution before everyone else does—and thus increase their chances of finding blocks first. As a result, this competition leads to higher difficulty levels which make it harder for anyone except large groups of miners (like companies) controlling significant amounts of computing power—to generate enough hashpower necessary for mining blocks at current levels."

Conclusion

Prices are determined by supply and demand. The supply of Bitcoin is limited, so as demand increases, the price goes up. Likewise, if there is a drop in demand or an increase in supply, then the price will go down.