Bitcoin as a “Store of Value”, where we are today, and where we shall go tomorrow…
I got into crypto sometime in August of 2017. It was during January of 2018, when I was reading up on Satoshi’s whitepaper of Bitcoin. Prior to it I was into researching ICO’s. I had a decent understanding of what Bitcoin was, but after reading so many whitepapers, I thought maybe I should read the big daddy’s whitepaper next…
And so I did.
Post that I came across the term “Bitcoin is a store of value” while reading one of the articles on bitcoin, and this term kept on popping up in a number of articles I read after this one. To be honest, I didn’t quite understand the term “store of value”. I was not from an economics background. I was an IT major who had just graduated my college and was checking out bitcoin on hearsay of one of my father’s colleague. I began asking myself what does this term store of value means. I knew it was something fundamentally important to bitcoin, so I wanted to understand it on my own, without any help of Google or whatsoever. It was my will to feel this gravity of this characteristic on my own. I was sitting on my desk looking at the pen in front of me. I asked myself, can this be a store of value? And things got clearer post this question. It took me about couple of weeks to realize what a store of value is, especially in context of bitcoin. After that, I began to investigate as to why bitcoin could be a store of value, and a trusted store of value on top of that…
In its ten years of existence, Bitcoin has been subjected all kind of hells, not only has it managed to survive, but has in fact…. Thrived! From being branded as “Bitcoin is for criminals/drug dealers”, “Bitcoin is illegal”, and the popular online article headlines “Bitcoin banned by XYZ government”, bitcoin has managed to resurge every time. Since its inception in 2008, bitcoin has come a long way, and has shown a remarkable degree of a resiliency which was perfectly put by Andreas’ analogy of Bitcoin as a “sewer rat”.
Coming to Bitcoin’s Store of Value I will discuss upon few things that makes a bitcoin valuable..
1. Intrinsic Value
Bitcoin does not grow on trees. It takes a considerable amount of resources to mine a bitcoin. Electricity and computational power are used in enormous amounts to mine a single bitcoin.
Mining has become a very competitive business, but still miners continue to mine bitcoin.
Why? Because to them, the reward is worth it.
A recent tweet from Sam Doctor of Fund Strat states that it takes about 7,300 USD for a miner to breakeven.
Below is one of the most interesting Tweets of Bobby Lee in regards to the next halving of miner rewards due to happen in 2020
The point I am trying to make here is, in future mining of bitcoin will become even more competitive than it is today. The computational puzzle would become more complex, and the mining rewards would decrease. It would require far more electricity, higher degree of computational power to mine a bitcoin. In the view of miners mining presently, and miners that will mine in future, ask yourself this- “Would it make sense for any miner to sell a bitcoin at a price which is lower than investment of his resources (costs of electricity and expensive mining equipment)?”
The logical answer would be a big NO! (Unless a scary bug is found in bitcoin). This logically implies that Bitcoin must become valuable enough for miners to continue mining it.
2. A ray of hope to nations with failed currencies/failing currencies
With currencies loosing up to 50% of their value in a single day, 2018 has been one of the most brutal year for a steep decline in the value of currencies of numerous nations.
The conditions for decline can be many e.g. oppressive regimes, geopolitical tensions, sanctions etc.
Hyperinflation is a very real thing, every time Venezuela comes in my feed, I feel sad seeing the fate of this once prosperous nation. Today the value of paper itself is more valuable than the denomination it carries upon it.
To put things into perspective, take a look at this video
https://twitter.com/GoldTelegraph_/status/1042092154158571522
Take a look at the performance Iranian Rial vs USD
And Turkish Lira
Argentenian Pesos and Indonesian Rupiah are also telling a similar story (just like many other currencies)
Looking at the graph of these currencies, I began to wonder how difficult it must be for the people there to live under these conditions. I asked myself “did these people deserve to pay for the screw ups of their government?”
In this video below from 3:00–3:35 CFTC Chairman Giancarlo shares some of the insights to world currencies where he goes on to say “Probably two third of them (countries) are not worth the polymer they are written on”
As Ludwig von Mises rightly said…
“Government cannot make man richer, but it can make him poorer.”
I very well acknowledge that bitcoin is a volatile asset, but keeping your money in bitcoin at times can prove to be a far better alternative than your own currency if you do not trust your government to safeguard the “store of value” of your national currency and other assets.
The lesson to be learned from falling values of these currencies are-
· The governments cannot always protect your assets globalized economic shockwaves.
· The time has come for people to take the control of their assets into their own hands.
3. Upcoming Tech Advancements that will further propagate Bitcoin Adoption
Ever since the advent of Bitcoin in 2008 lower transaction throughput has perhaps remained as the most challenging issue for bitcoin adoption. However, some technologies are finally coming to make bitcoin go mainstream. I will be discussing two of the most prominent ones below.
Schnorr Signatures: Poised to be one of the most significant updates to bitcoin network since the segwit soft fork, it is bound to bring very significant benefits for the bitcoin community. Smaller size of Schnorr signatures (64 bytes) compared to the existing signing mechanism of ECDSA (71–75 Bytes) will enable more number of transactions to be put in the new blocks without increasing the block size. Estimates are that this upgrade would reduce the use of storage and bandwidth by around 25%
For a detailed read on Schnorr Signature I’d like you to read two very good articles
- Why Schnorr signatures will help solve 2 of Bitcoin’s biggest problems today
- Schnorr Signatures: What, When & Why?
Lightning Network: If I was to put it simply, it would mean- “Instant payments using bitcoin with near zero fee”.
With lightning network anyone would be able to pay for coffee, sandwiches, clothing or any other goods and services with bitcoin instantly.
For detailed understanding of Lightning Network, I’d highly recommend reading Coin Telegraph’s excellent article on Lightning Network
What Is Lightning Network And How It Works
I’d also suggest to see Lightning network live in action below..
Buying Coffee Using Bitcoin — Lightning Network
And an excellent debate on Lightning Network
Roger Ver Debates Charlie Lee — The Lightning Network
In short, Lightning will provide the necessary infrastructure to use bitcoin for transactions in your day to day life.
With these two technologies I expect greater adoption of bitcoin, and a greater adoption of Bitcoin will inevitably result into Bitcoin’s emergence as a stronger store of value.
Will there ever be a day when Bitcoin can become a national currency of a nation?
I believe so, Yes.
We have to go back in history a little for it…
During the Greek crisis of 2015, it was later revealed that Greece seriously considered using Bitcoin as their national currency. The exact words from a Greek MP were-
This a proof that countries can indeed realistically consider bitcoin to be their national currency. Whether they decide to do it after they encounter a financial crisis or before, it is a choice they solely have to make.
While there are many ways it could happen in future, but if I were to speculate, it’d probably a new-born country or a country that’s engulfed a debt crisis which will declare bitcoin as a national currency. Thereby starting off the trend of bitcoinization.
