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Why does Bitcoin have value and how is the price determined?

Liza Visser 
As a growing number of people become aware of and interested in Bitcoin –especially when the price tends to increase– we often get asked:

“Why exactly does Bitcoin have value?”

Many people find it difficult to grasp how something which only exists digitally can have any value at all.

Economics 101
The answer to this question is rather simple and it lies in basic economics: scarcity, utility, supply and demand.

By definition, if something is both rare (scarce) and useful (utility) it must have value and demand a specific price, with all other things being equal.

Take gold, for example. Why does gold cost as much as it does? Put simply, it is relatively expensive because it is rare, hard to find and limited in supply (scarcity). Gold also has some uses to which consumers derive satisfaction from (utility).

The combination of these two elements creates value by which price is determined based on the market’s supply and demand.

So what does this all have to do with Bitcoin?
Like gold, Bitcoin is also scarce: its supply is limited. There are currently just over 16.2m Bitcoin in circulation and the maximum that will ever exist is capped at 21 million. This set cap is well known, making its scarcity transparent.

However, to have value, Bitcoin must also be useful. Bitcoin creates utility in a number of ways.

Like gold, Bitcoin is perfectly fungible (one Bitcoin is similar to another), it is divisible (you can pay someone a small fraction of Bitcoin, should you want to) and easily verifiable (via the Blockchain).

gold

Bitcoin is not just scarce, it also has utility
Bitcoin also has other desirable properties. It is fast, borderless and decentralised with the potential to change the financial world for better.  Not only does it currently have value as a payment system, but also as an asset class (a store of wealth). It is also useful because it is built on open protocols, meaning, anyone can innovate on top of it and make the system better.

Bitcoin also has undeniable utility even when compared to other, newer cryptocurrencies. There is simply no other digital currency that is as widely used and integrated at this point in time. Through network effects, we’re starting to see exponential growth, which creates value as more and more people start using Bitcoin and more merchants accepting it as a means of payment.

Today, there are already thousands of merchants around the world accepting Bitcoin as a means of payment, thus proving the growing usefulness of it.

Take telephones, for example. When the first telephone came out, it had very little value in that hardly anyone used it yet. However, as more and more people started using it, the usefulness grew exponentially.

The same is true for Bitcoin: the more people who start using and understanding it, the more useful it will become to everyone else.

How the price of Bitcoin is determined
The price of Bitcoin is not the same as its value. Price is determined by the market in which it trades: by means of supply and demand. This is the same way the price of your secondhand car, a bag of apples in the supermarket, an ounce of gold and just about everything else is determined.

Traders with bank accounts in our supported countries can trade Bitcoin on the Luno Exchange, which sets the specific price at a specific time for a specific market. Luno doesn’t set the price: the traders (buying and selling on Luno) do.

Put simply, it is the ongoing interaction between buyers and sellers trading with each other that determines the specific price of Bitcoin (and everything else).   

However, when determining price, one must also consider the amount that buyers are currently willing to pay for the future value of a specific item. In other words, if the market believes the price of something –like property, a certain stock or Bitcoin– will increase in the future, they are more likely to pay more for it now. 
Some of the instances where Bitcoin currently has utility was mentioned above, but since Bitcoin is an evolving and improving technology, many are optimistic that there are many other use cases to come. Some, perhaps, that we haven’t even thought of yet.

Why does the price change so often?
This is called volatility and it’s not only Bitcoin exchange rate that seems to change from day to day. The price of many things, such as stocks, currencies, oil and many other products, can be quite volatile: moving up and down a lot against a base currency (such as the US dollar).

The total Bitcoin market is still relatively small when compared to other industries. It doesn't take significant amounts of money to move the market price up or down, thus the price of a Bitcoin is still somewhat volatile.

That said, the volatility of Bitcoin has consistently been going down and it has become much more stable in recent times.

How has the price of Bitcoin changed over time?
We created a Bitcoin Price Calculator page, where you can see what price of Bitcoin was with Luno at any time in the past.

So, there you have it. In a nutshell: if something is both useful and scarce, it will demand value and a price. Bitcoin is both useful and scarce, so it has a value and a price, determined by supply and demand. And remember that the value of Bitcoin and the price of Bitcoin are not synonymous.  

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Avatar Liza Visser
AUTHOR
Liza Visser

Liza holds a BCom Management Sciences degree in Marketing and Economics from Stellenbosch University. She previously worked for two national event companies and is passionate about digital marketing and e-commerce.

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Graphene-based sieve turns seawater into drinking water

By Paul Rincon
Science editor, BBC News website
3 April 2017
 From the section Science & Environment 42 comments    Artwork: Graphene-based membranes hold huge promise in desalination
A UK-based team of researchers has created a graphene-based sieve capable of removing salt from seawater.
The sought-after development could aid the millions of people without ready access to clean drinking water.
The promising graphene oxide sieve could be highly efficient at filtering salts, and will now be tested against existing desalination membranes.
It has previously been difficult to manufacture graphene-based barriers on an industrial scale.
Reporting their results in the journal Nature Nanotechnology, scientists from the University of Manchester, led by Dr Rahul Nair, show how they solved some of the challenges by using a chemical derivative called graphene oxide.
Isolated and characterised by a University of Manchester-led team in 2004, graphene comprises a single layer of carbon atoms arranged in a hexagonal lattice. Its unusual properties, such as extraordinary tensile strength and electrical conductivity, have earmarked it as one of the most promising materials for future applications.
But it has been difficult to produce large quantities of single-layer graphene using existing methods, such as chemical vapour deposition (CVD). Current production routes are also quite costly.
On the other hand, said Dr Nair, "graphene oxide can be produced by simple oxidation in the lab".
He told BBC News: "As an ink or solution, we can compose it on a substrate or porous material. Then we can use it as a membrane.
"In terms of scalability and the cost of the material, graphene oxide has a potential advantage over single-layered graphene."

Of the single-layer graphene he added: "To make it permeable, you need to drill small holes in the membrane. But if the hole size is larger than one nanometre, the salts go through that hole. You have to make a membrane with a very uniform less-than-one-nanometre hole size to make it useful for desalination. It is a really challenging job."
Graphene oxide membranes have already proven their worth in sieving out small nanoparticles, organic molecules and even large salts. But until now, they couldn't be used to filter out common salts, which require even smaller sieves.
Previous work had shown that graphene oxide membranes became slightly swollen when immersed in water, allowing smaller salts to flow through the pores along with water molecules.
Now, Dr Nair and colleagues demonstrated that placing walls made of epoxy resin (a substance used in coatings and glues) on either side of the graphene oxide membrane was sufficient to stop the expansion.

Restricting the swelling in this way also allowed the scientists to tune the properties of the membrane, letting through less or more common salt for example.
When common salts are dissolved in water, they always form a "shell" of water molecules around the salt molecules.
This allows the tiny capillaries of the graphene-oxide membranes to block the salt from flowing through along with the water.
"Water molecules can go through individually, but sodium chloride cannot. It always needs the help of the water molecules. The size of the shell of water around the salt is larger than the channel size, so it cannot go through," said Dr Nair.

By contrast, water molecules flow exceptionally fast through the membrane barrier, which makes it ideal for use in desalination.
"When the capillary size is around one nanometre, which is very close to the size of the water molecule, those molecules form a nice interconnected arrangement like a train," Dr Nair explained.
"That makes the movement of water faster: if you push harder on one side, the molecules all move on the other side because of the hydrogen bonds between them. You can only get that situation if the channel size is very small."
By 2025 the UN expects that 14% of the world's population will encounter water scarcity. As the effects of climate change continue to reduce urban water supplies, wealthy modern countries are also investing in desalination technologies.
Current desalination plants around the world use polymer-based membranes.
"This is our first demonstration that we can control the spacing [of pores in the membrane] and that we can do desalination, which was not possible before. The next step is to compare this with the state-of-the-art material available on the market," said Dr Nair.
In a news and views article accompanying the study in Nature Nanotechnology, Ram Devanathan, from the Pacific Northwest National Laboratory in Richland, US, said more work needed to be done to produce graphene oxide membranes inexpensively at industrial scales.
He added that scientists also needed to demonstrate the durability of the membranes under prolonged contact with seawater and ensure the membrane was resistant to "fouling" by salts and biological material (which requires existing barriers to be periodically cleaned or replaced).
"The selective separation of water molecules from ions by physical restriction of interlayer spacing opens the door to the synthesis of inexpensive membranes for desalination," wrote Dr Devanathan.
"The ultimate goal is to create a filtration device that will produce potable water from seawater or wastewater with minimal energy input."
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Trump Plans Have Deal Makers Dreaming Big ($100-Billion-Cash-Takeover Big)

Bayer’s German headquarters. The company’s $66 billion offer for Monsanto last year is the record for an all-cash takeover bid. Credit Volker Hartmann/Getty Images

By MICHAEL J. de la MERCED APRIL 2, 2017

Bayer’s German headquarters. The company’s $66 billion offer for Monsanto last year is the record for an all-cash takeover bid. Credit Volker HartmanNEW ORLEANS — It wasn’t just cocktails on Bourbon Street or lucky breaks at the blackjack tables that contributed to the buoyant mood of the deal makers who gathered here last week. President Trump — and his support for lower taxes and lighter regulations — also had something to do with it.

At a gathering of the nation’s top mergers and acquisitions lawyers and bankers, the consensus was that under the Trump presidency, deal making should boom.

Lower taxes and less regulation, the thinking goes, should contribute to strong stock prices. And when the markets are up, companies are more likely to strike big deals. Finally, the pro-business Trump administration, most deal makers believe, is likely to take a forgiving view when it comes to antitrust matters.

Taken together, it was enough to lift the spirits of the lawyers, bankers and other advisers who attended Tulane University’s mergers conference last week.

Officially known as the Corporate Law Institute, the event is the year’s pre-eminent gathering of mergers advisers, a Davos for the deal maker set. For decades, top bankers and lawyers from Goldman Sachs; Cravath, Swaine & Moore; and other firms have come to the conference, in good times and in bad.

Lawyers who attend earn legal credits (several lawyers said they eagerly awaited a panel discussion on the arcane matter known as shareholder appraisal rights, a topic that makes nonlawyers’ eyes roll). But the real purpose of the event is to network, whether over butter-laden gulf fish at Galatoire’s or sherried turtle soup at Commander’s Palace or at the high-roller poker tables at Harrah’s.

This year’s gathering had more than 600 attendees, setting a record. And the general agreement throughout the crowd attending presentations at the stately Roosevelt Hotel was that the prospects for business were as good as ever. The sentiment was best captured when a senior banker from JPMorgan Chase made the bold claim that, under current market conditions, a company could strike a $100 billion takeover, paid entirely in cash.

Many deal makers had hoped this year would bring more business after a relatively slow 2016. A survey of 120 advisers by the Brunswick Group, a financial public relations firm, found that 44 percent of respondents believed that more mergers would be struck this year than last.

Mergers data for the first three months of the year appeared to at least partly support that. Some 10,229 transactions, worth $771.3 billion, were announced in the first quarter, according to Thomson Reuters. The dollar value was up 11 percent from the same time a year ago, although the number of deals was down about 11 percent.

Yet doubts were already emerging about whether Mr. Trump will really usher in a boom time for mergers, with the failure of the Republican health care overhaul and the president’s unpredictability threatening to dampen spirits.

Crossing Borders, Making Deals
Mergers worldwide grew 11 percent in the first three months of the year, compared with the period a year ago, as stock markets climbed. Leading the surge were cross-border transactions, which totaled $339.5 billion — the highest level since the first quarter of 2007.

The $100 Billion Deal

The tone for much of the conference was set as Kurt Simon, global chairman for mergers and acquisitions at JPMorgan, made his bold prediction that an enterprising corporate giant today could assemble an all-cash takeover bid of $100 billion.

It was an audacious claim — the record for an all-cash offer is Bayer’s $66 billion bid for Monsanto last year — but it illustrated how favorable the markets are for deal making.

Mr. Simon argued that the right company could borrow enough debt at low interest rates to cover the cash. Investors have largely supported corporate takeovers, pushing up the stocks of purchasers. And the Trump administration, which recently named a health care lobbyist as its choice for the Justice Department’s top merger reviewer, seems unlikely to block many deals.

Some attendees quietly joked that JPMorgan was simply angling for big lending fees. But none disputed the data underlying Mr. Simon’s claim. Interest rates remain low despite two raises by the Federal Reserve. Stock markets have been largely calm, devoid of whipsawing that would give buyers or sellers pause.

“The U.S. economy is in really good shape,” Mr. Simon said.

A Nod to Shareholder Activism

For years, many of the panelists at Tulane argued vigorously that activist hedge funds trying to shake up companies were short-term investors and did not have the best interests of other shareholders at heart.

Now, even the staunchest critics of these activist shareholders concede that the practice is here to stay.
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This conference was perhaps the first one in which an activist sat on stage with the chief executive of a company his firm had targeted. And each man sang the other’s praises.

Gerald L. Hassell, the chief executive of Bank of New York Mellon, spoke on a panel with Edward Garden, the chief investment officer of Trian Partners, an activist hedge fund that had targeted Bank of New York Mellon. The men discussed how they had cooperated in improving the bank’s financial performance, recounting dinners spent discussing strategy and joint efforts to provide financial benchmarks.

“I just want great outcomes,” Mr. Hassell said when asked who deserved praise for the bank’s turnaround. “It’s not an issue of who gets credit.”

And during another panel on activism, the entire group — advisers both to activists and to the companies those investors target — treated the practice as a permanent fixture on the corporate landscape.

Even Joele Frank, a financial publicist who has long advocated waging war on activists, has mellowed out on the topic.

“The biggest change I’ve seen in my practice is there is positive dialogue between the activist and the company for a settlement,” she told the group.

The Wisdom of Leo Strine

For lawyers in particular, one major draw of the conference is the chance to mingle with judges from Delaware, the corporate home for the vast majority of American companies.

And in particular, that means hearing from the most quotable of them all: Leo E. Strine Jr., the chief justice of Delaware’s Supreme Court.

Mr. Strine is widely regarded as one of the sharpest minds on the Delaware bench, and almost certainly its sharpest wit.

At the Roosevelt, he displayed the offbeat humor that laces his judicial opinions. He described one legally dubious situation as having a smell that was “not Bourbon Street when you’re having fun, but Bourbon Street the next morning.”

Not all was sunshine at the Tulane conference, whether with the mercurial New Orleans weather or with the outlook on transactions.

Panelists pointed to the rise of economic nationalism as a potential dampener on mergers. Both the Brunswick survey and Mr. Simon, of JPMorgan, cited a likely drop in offers for American companies by Chinese and Russian bidders.

Then there was the prospect that the Republicans’ failure to pass a replacement for Obama-era health care regulations made a sweeping tax law overhaul less likely. Some deal makers feared that the issues on which they most want to see reform — corporate tax rates and the taxation of sales made abroad and then brought back to the United States — could end up felled by political gridlock.

“Post-heath care, we have to consider a number of scenarios, one of which is that nothing happens,” said Eileen T. Nugent of the law firm Skadden, Arps, Slate, Meagher & Flom.

And finally, there is Mr. Trump himself, and his brand of economic populism.

Merger proposals that would lead to big job cuts would be unlikely to go anywhere, George R. Bason Jr. of the law firm Davis Polk & Wardwell said, calling such layoffs “a tragedy for a lot of people.”

A version of this article appears in print on April 3, 2017, on Page B1 of the New York edition with the headline: Trump’s Plans Fuel Big Dreams by Deal Makers. Order Reprints| Today's Paper|Subscribe

 

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