⚠️Disclaimer: The argumentation in this article is largely based on the book "Golden Future" by Florian Bruce-Boye. I found this perspective on Bitcoin too good not to share with you. If you are looking for a good book on Bitcoin that is suitable for both beginners and advanced users, I can absolutely recommend this book.
In this article, I will introduce you to 16 characteristics that a perfect store of value should have, according to the author Florian. I will then show you why Bitcoin (and only Bitcoin) fulfills all these characteristics and thus represents a paradigm shift in terms of store of value.
One more note before we start with the properties: "The value should be stable" is not a property, but results from the properties of an asset.
Properties of a perfect store of value and why Bitcoin fulfills all of them
(1) No inflation possible
Inflation, in whatever form, would dilute your share of the store of value. The ideal store of value is truly and definitely limited. Even gold is not ideal in this respect, as it inflates at just under 2% per year. If you own 10% of all gold today, in 36 years you will only own 5% of all gold.
-> Bitcoin is limited to 21 million units - forever. This means that no institution, no state and no individual will be able to "print" more Bitcoin or put it into circulation.
(2) Infinitely divisible
For scarce goods in particular, it is important that they are sufficiently divisible. This ensures that people with limited assets can also benefit from the store of value. At the same time, it is also advantageous if parts of the stored value can be used, sold or sent in any amount.
-> One Bitcoin can be divided into 100 million parts (satoshis). In 2nd layer technologies such as Lightning even further. In case anyone is now wondering whether Bitcoin is therefore not absolutely scarce - if you cut a cake into an infinite number of pieces, it will still not become more.
(3) Liquidity
It should be possible to buy or sell the store of value at any time. Real estate is expensive and shares can only be sold at certain times on certain days.
-> Bitcoin can be traded anytime and anywhere. There is no market that is closed, no office hours or public holidays.
(4) Transportable
My store of value should be transportable so that I can move it with me from A to B without any problems. In the case of real estate, the lack of transportability is already included in the name. This makes it vulnerable to the forces of nature, wars, taxes and expropriation.
-> There is no easier way to transfer value than Bitcoin. All you need is the private key. You could theoretically transport billions of euros in Bitcoin in your head by simply memorizing your private key. Unlike gold or real estate, Bitcoin is unbeatable in this respect - completely independent of space and time.
(5) Transportable
The perfect store of value should be movable over spatial distances independently of me. I want to have the freedom to send any part of my stored value around the world. For example, I cannot easily send shares, gold and real estate from A to B.
-> With Bitcoin, you can send a value from A to B, no matter where A and B are located. Bitcoin is global and borderless.
(6) No "cost of carry"
The ideal store of value should cost nothing, regardless of whether I have 10 or 10 billion euros stored in it. A real estate portfolio worth 10 billion euros is associated with considerable ongoing costs.
-> It doesn't matter whether it's 10 or 10 billion euros - the storage costs only differ very slightly.
(7) No possibility of access by third parties
The ideal store of value should be 100% in my possession. This means, among other things, that no third party can take my store of value away from me, whether friend or foe, state or mafia.
-> With Bitcoin, you are your own bank. Nobody can access your Bitcoin as long as you keep your private key safe. There is no third party who could have access to your assets, be it a state, a bank or another institution.
(8) No entity has control over the store of value
In the ideal store of value, there is no entity that can exercise control over the store of value. There should be neither a CEO who can make decisions nor a state that can print units of my store of value at will. Ideally, all properties are secured without having to be guaranteed by an authority.
-> Bitcoin is decentralized. There is no central authority that could control or influence Bitcoin. Neither a CEO nor a government has the power to make changes to the network or influence the money supply. This makes Bitcoin independent of political and economic interventions that often threaten other stores of value.
(9) Available everywhere
The ideal store of value should not only be accessible to me at all times, but also everywhere.
-> Bitcoin is accessible everywhere as long as you have an internet connection (which is no longer even necessary!). No matter whether you are in New York, Tokyo or a small village without banks - Bitcoin is available to everyone in the world.
(10) Permanent
The ideal store of value is infinitely durable and indestructible. Its half-life is unlimited.
-> Bitcoin cannot decay, rust or be destroyed. There is no physical unit that could be damaged by time or external influences. As long as the network is running and the private key exists, your Bitcoin remains secure and valid forever.
(11) Verifiable
Anyone should be able to quickly verify whether a unit of the store of value is real. If I were to give you 1g of gold right now, you couldn't be sure whether it was real or whether it was actually 1g of tungsten coated with gold.
-> Anyone can easily check the authenticity of Bitcoin. The blockchain makes every transaction transparent and traceable for everyone. There is no way to create counterfeit Bitcoin.
(12) Infinite capacity
The ideal store of value is there for everyone. This means that you can store both 10 euros and 100 billion in it.
-> Bitcoin has no upper limit to the amount of value you can store. Whether it's small amounts for everyday use or large assets, Bitcoin is accessible and scalable for everyone, regardless of the size of your wealth.
(13) Same rules
The store of value should treat all holders equally and not assign special rules to anyone just because more money was deposited.
-> Bitcoin knows no special treatment. Whether you own 0.001 BTC or 100 BTC, the network treats all participants equally. Every Bitcoin owner is subject to the same rules and conditions. Unlike traditional financial systems, which often favor the rich, Bitcoin is egalitarian and transparent.
(14) Final
A transaction in the ideal store of value should be final and irreversible.
-> Bitcoin transactions are final. There is no way to undo a completed transaction.
(15) Not forgeable/corruptible
Neither forgery nor corruptibility should be possible.
-> Due to the use of cryptography and decentralization, Bitcoin is forgery-proof and non-corruptible. There is no way to manipulate or counterfeit Bitcoin.
(16) Fungible
Each piece of the store of value should have the same value as another piece of the same size. Two pieces of the same size do not have the same value.
-> Every Bitcoin is of equal value. Whether you own a Bitcoin in the USA or in Germany, it has the same value. There are no differences between units, as can be the case with other assets (e.g. real estate or art).
(This point is where I would still be most contentious with someone saying that Bitcoin does not 100% fulfill this property, as certain UTXOs, such as those associated with criminal activity, are not 100% equivalent to others. )
Why gold, stocks and real estate do not fulfill all the properties of a perfect store of value
Now that we have clarified why Bitcoin fulfills all 16 characteristics of an ideal store of value, the question arises: How do other popular asset classes such as gold, equities and real estate fare in this comparison? As this article is already relatively long, I have tried to keep it as short as possible. I have also not mentioned all the points and explained them in detail.
Gold 🪙
Gold has been used as a store of value for thousands of years and has proven to be stable in times of crisis. But is that enough to make it the perfect store of value? Unfortunately not.
- Inflation: Even gold is not immune to inflation. Every year, around 2% of the world's gold reserves are newly mined, which reduces scarcity over time.
- Divisibility: Unlike Bitcoin, gold can only be divided to a limited extent. If you own a gram of gold, it's not as easy to precisely divide it into smaller units and use them.
- Liquidity: While gold is valuable, it's not always easy to trade around the clock. You need physical markets or specialized dealers, and selling times are also often limited.
- Transportability: Gold is heavy and physical. This makes it vulnerable to theft and complicated in terms of logistics. Transporting a few kilograms of gold is much more costly and risky than sending a few Bitcoin from A to B.
- Costs: Gold incurs high storage and insurance costs. These costs increase the more gold you own, making it an expensive store of value compared to Bitcoin.
- Availability and accessibility: Gold is not available everywhere. In many parts of the world, access to gold is difficult and requires specialized storage locations.
- Counterfeiting: Verifying the authenticity of gold is a challenge. Many gold bars and coins have been counterfeited in the past or made with inferior materials.
Gold fulfills some important characteristics of a store of value, but in the modern world where speed, flexibility and security are crucial, it cannot keep pace with Bitcoin.
Shares📊
Shares are considered one of the most popular forms of investment (who am I telling here on the platform😉). However, they perform far worse as a store of value.
- Inflation: Companies are constantly issuing new shares, which can dilute your holding.
- Divisibility: Shares are not as flexibly divisible as bitcoin.
- Liquidity: Although shares can be traded on stock exchanges, they can only be traded at certain times and on certain days. Unlike Bitcoin, stock markets are not open around the clock.
- Transportability and portability: Shares can't just be shipped from A to B.
- Third-party access and control: Shares are controlled by many institutions. Companies, governments and regulators have an influence on the stock markets, which means that your ownership is never fully protected. Your assets could be confiscated.
Stocks are an excellent investment when it comes to capital appreciation, but they don't fulfill the requirements of a perfect store of value nearly as well as Bitcoin.
Real estate🏠
Real estate is often seen as a long-term store of value. However, they have considerable weaknesses in this context.
- Inflation: More and more properties are being built. In addition, rising costs for maintenance, repairs and property taxes lead to a reduction in value over time.
- Divisibility: Real estate is the prime example of a lack of divisibility. You can't simply sell part of your home when you need cash.
- Liquidity: Real estate is extremely illiquid. Selling a property can take months or even years, and often involves significant fees and commissions.
- Transportability and portability: Real estate is, by definition, fixed in location. It is inflexible, and even if the economic situation in a particular area deteriorates, your capital remains tied up.
- Third party access and control: Real estate is highly regulated. You are subject to government regulations, taxes and sometimes even the risk of expropriation. Here, too, the owner has only limited control.
- Costs: Real estate comes with significant ongoing costs. Maintenance, insurance, taxes and sometimes loss of rent make it an expensive store of value.
Real estate may be valuable and relatively stable, but its immobility, high costs and illiquidity make it much less attractive as a store of value than Bitcoin.
Conclusion
We all invest to carry our purchasing power into the future. Everyone wants to escape inflation and carry their purchasing power into the future in the form of work/life.
On the stock market, the motto is to spread money as widely as possible. To this end, we misuse assets as a store of value that should actually fulfill a different function. A property is a consumer good that you can live in. Gold is used for jewelry and in small quantities in industry. With shares, you own a stake in a company and can have a say and participate in the increase in value. However, you are dependent on many factors, such as management decisions, changes in the market environment and regulatory hurdles imposed by the government.
Diversification of assets helps to compensate for the weaknesses of individual companies.
So if there is a perfect store of value, is diversification into different asset classes even necessary?
I would be delighted if a few of you read the article and leave your comments. Of course, I also appreciate every Like👍and Follow.
Have a nice rest of the week everyone!✌️
Your Stefan
