Bitcoin, a store of value?

a month ago

Bitcoin, a store of value?

While some consider Bitcoin to be peer-to-peer electronic cash, others believe that it is more of a store of value. So, what is it, digital cash, digital gold or both?

The famous Whitepaper

The Bitcoin whitepaper which was written by Satoshi Nakamoto, the mysterious inventor of Bitcoin, states that BTC is peer-to-peer electronic cash. This indicates that Bitcoin was meant to be a medium of exchange.

And in fact, it can be used for payments in thousands of stores and online platforms. With the emerging use of the Bitcoin network it became clear that its network can only handle a certain amount of transactions.

Meaning that regular payment options like VISA for instance can handle more transactions per second. In the end of the day, Bitcoin is more secure, itis peer-to-peer, but it lacks behind credit cards and wire payments.

Scarcity is Key

Another feature of Bitcoin is the fact that it is considered hard money. Meaning, that there is a very low inflation over time and a fixed hard cap with about 21 Million Bitcoin that will ever come to existence.

One might believe that gold or other precious metals have still an advantage, because they are more established, but studies have shown that especially younger people are more likely to trust Bitcoin instead. And they have very good reasons to do so.

While gold and silver seem to be scarce, real scarcity is only achieved with Bitcoin. There are still tons of gold and silver produced each year. In fact, it’s getting more and more. Only a very high demand can drive the price.

No value without use

One problem is that a store of value becomes useless if nobody is willing to exchange it. Meaning that there needs to be some sort of trade in order to become a store of value in the first place. In this sense exchange is a requirement for value.

If there is nobody that is going to buy your Bitcoin it is useless that it is very scarce. Scarcity alone is not the driving factor. It is the fact, that people use it for a variety of purposes that’s adding value among the fact that it has a strictly limited supply.

So, yes, Bitcoin is a store of value, but it is also a medium of exchange and both are necessary for its success.

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