Oftentimes Bitcoin is referenced as being the ultimate store of value. After all, it has been the best performing asset of the past decade. Some even call it gold 2.0.
But you may be wondering, why is Bitcoin a store of value?
Don’t worry. In this article, I will answer that question and much more. So without further ado, let’s jump right in.
Bitcoin is a store of value thanks to its ease of exchange and scarcity. It has a total supply of 21 million and this cannot be exceeded. This creates a hard asset that maintains its purchasing power over time. Bitcoin also facilitates trade thanks to its digital nature, portability, and divisibility.
What is defined as a store of value?
A store of value is an asset that retains its purchasing power over time and can be reliably exchanged for goods or services. For it to be a good medium of exchange it must be divisible, durable, and portable.
Some notable examples of stores of value include gold, bonds, and gemstones.
7 reasons Bitcoin is a store of value
Overall, Bitcoin has a fixed supply of 21 million. When compared to assets such as gold this proves to be even more scarce due to its low inflation.
It is estimated that in 2140 the last Bitcoin will be mined making it deflationary at this point when you consider the lost bitcoin. Ultimately, the supply is fixed and this is reinforced by the code.
In other words, the supply is immutable meaning it cannot be changed. This reinforces its function as a store of value as the total supply is not diluted over time
One notable characteristic that makes Bitcoin a great medium of exchange is its digital nature. It can be transferred across the world in a matter of minutes.
It is not geographically bound and is free from trade restrictions. For instance, there are no import fees or tariffs imposed.
Bitcoin is an excellent store of value thanks to its divisibility. 1 Bitcoin can be split into one hundred million units known as satoshis. This facilitates trade as it can be exchanged for any value of good at a moment’s notice.
When compared to other stores of value such as gold and real estate that are relatively static in their divisibility, Bitcoin has the advantage.
The Bitcoin network is secured by a vast network of computers. In turn, there is no centralized entity such as a government or institution controlling it.
As a result, it does not have a single point of failure. There are not any physical assets or centralized servers that can be coerced by bad actors. Moreover, this makes it censorship resistant as the network can only fail if the majority of computers are shut down.
Bitcoin utilizes blockchain technology. This can be seen as a decentralized database that anyone can view and verify. This includes a complete history of transactions.
This legitimizes transfers and highlights fraud. In turn, it provides a more robust store of value that is honest.
Fungibility means that each unit of account is interchangeable with the other. For instance, 1 Bitcoin can be traded for 1 Bitcoin as they are identical in characteristics.
This proves beneficial in exchange as there is a clear predictable value.
Due to its digital nature Bitcoin is extremely durable. It does not suffer from wear or damage. Therefore, it maintains its integrity and therefore its value over time.
Examples of Bitcoins store of value
Firstly, let’s examine Bitcoins’ purchasing power since its inception. All in all, Bitcoin has had an annualized return of over 200%. As a result, this clearly shows that it retains its purchasing power over the long term.
Secondly, it can be exchanged for other goods and services. This is evident by the widespread adoption by retailers. In the US alone over 2300 stores accept Bitcoin. Not to mention, it is classified as a legal tender in El Salvador.
Thirdly, portability is second to none. Users can send funds across the world in less than 20 minutes. On April 10, 2020, over $1 billion was transferred in a single transfer with a fee of just $0.68.
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As you can see, Bitcoin is an excellent store of value. Over the past decade, it has increased its purchasing power considerably. This is thanks to several of its characteristics.
From its ability to be easily divided to its fixed supply these all support its value over time. Not to mention, they will only improve as technology and adoption develop.
I hope you found this article useful and thanks for reading it. Want to learn about why Bitcoin is not a store of value? Click here to check out my previous article.