Why does bitcoin have value?

Bitcoin has value because people are willing to pay for it, and they are willing to pay because it is scarce, hard to counterfeit and widely traded. Unlike a share or a bond, it has no earnings or interest behind it. Whether that is a strength or a fatal flaw is one of the longest-running arguments in finance.

What is bitcoin backed by?

Nothing in the traditional sense. No government guarantees it, and it is not a claim on gold, property or a company's profits. Modern national currencies are not redeemable for gold either, but they are supported by governments that tax in them and by laws requiring their acceptance.

Bitcoin relies on its design and on the people who use it. A separate guide covers what backs cryptocurrency in general.

What reasons do supporters give?

• Scarcity. The software caps the supply at 21 million coins, and new coins are released on a schedule that no person or institution controls.
• Security. The ledger is protected by mining, which makes rewriting past transactions extremely expensive. The network has operated since 2009.
• Network. Bitcoin is the oldest and most widely held cryptocurrency. It trades around the clock on exchanges worldwide, so a holder can usually find a buyer.
• Independence. No company or central bank can issue more coins, which appeals to people who distrust institutions or live with unstable currencies.

Together these features underpin the "digital gold" argument: that bitcoin can serve as a store of value, an asset people hold to preserve purchasing power over time, much as some investors hold gold.

What do critics say?

The critics' case starts with cash flows. A share pays dividends from profits, a bond pays interest and a rental property pays rent. Analysts can estimate what those payments are worth. Bitcoin pays nothing, so its price depends entirely on what the next buyer will pay. Prominent investors, including Warren Buffett, have made this argument for years.

The second objection is volatility. Bitcoin has more than once lost over half its value within months, and it has also risen sharply. Critics say an asset that unstable cannot be a dependable store of value, and that it works poorly as everyday money.

Others point out that gold has a long history and industrial uses, which bitcoin lacks.

Who is right?

Both sides agree on the mechanics. Bitcoin's price is set by supply and demand in open markets. The supply side is known in advance. The demand side is not, and it depends on the belief that others will go on wanting it.

Supporters reply that all money rests on shared belief. Skeptics answer that belief can evaporate, and that an asset with nothing underneath it can fall a long way when it does. More than 15 years after launch, the argument is not settled.