Bitcoin as a Store of Value is Still its Greatest Narrative
How Everyone got High on DeFi and Lost their Cool
Thanks to community member Will for contributing this content
In times of crisis, money typically flows into alternate “safe haven” assets like gold. Bitcoin had been moving in sync with gold for months, until the current liquidity crisis triggered huge sell-offs across all asset classes, including crypto. Bitcoin, long considered a store of value, was down 50% in a matter of days. Even longtime hodlers expressed disappointment at Bitcoin’s rapid sell off. So what changed?
When the economy is stress tested to the point where the stability of markets and more traditional stores of value like gold begin to fail, is it fair to expect Bitcoin to remain stable?
High on DeFi
DeFi and institutional investing have been growing rapidly, and they were a massive driver of Bitcoin’s price growth in 2019. As the crypto community welcomed the institutional money that came to buy, we have to remember that they are buying for investment purposes only. Many of those rushing to cash out their crypto portfolios were also cashing out their global market equities. Born from the 2008 recession and subsequent bailout, Bitcoin has yet to reach its full potential. Intended to be a digital peer-to-peer cash system, it has been used mostly for speculative investment. Institutional investors were last in, first out, and those left standing are likely the ones who have been in it all along
I wrote this on March 9, 2020, with the economy clearly heading into a recession. Trust around the world will be defaulted in the form of bailouts, debasement of currencies, market manipulation and so on. Bitcoin, and digital currencies in general, don’t share these problems.
Bitcoin is perhaps the only asset that can drop 50% in one day and rally without government intervention to prop it up.
Breaking it Down
What is store?
Bitcoin is a ledger that states with certainty where every network transaction is going, and has been. Transactions can’t be reversed, altered or blocked. Nobody is in control of Bitcoin because it is a network that operates as a collective. There is a common good; security in the form of immutability, and the collective profits from the network’s social subsidy in order to assure that the network lasts indefinitely.
As long as the network remains secure, it should theoretically remain profitable in the long run.
While it is acknowledged that no network is guaranteed to remain secure, we work with high probabilities that they will; and furthermore, we can introduce more risk mitigating adjustments to the ecosystem over time.
What is value?
Obviously value is subjective. Situational circumstances, cultural significance, sentimentalism, nostalgia, and availability can all influence the value of objects. Scarcity also adds value. A finite number of coins in circulation creates scarcity, and thus adds value. Value also comes from scarcity with meaning. A paper with a line through it can have meaning, but it isn’t scarce, therefore not valuable. Meaning is represented in words, objects, and by ideas.
As an idea, Bitcoin represents a shared belief in decentralized digital currency. In an era of centralized bank and government manipulation, this is scarce. And valuable.
Store + Value
Bitcoin has a simple yet profound ability to secure event based information. Now these events in Bitcoin’s context are scarce, limited, and costly, but Bitcoin’s high hash rate makes it the most reliable settler of multi-party events on the planet, and in human history.
Currently, Bitcoin has the highest hashing power by far. It offers finality in transactions that is unparalleled. The quality of a store of value in this context is an ideal asset that has best in class security, is non-amendable, and can settle disputes in less secure environments. The records are simplistic and well distributed, and these are really the biggest qualities we want in a Store of Value; something that can operate as a security anchor/settlement layer for preserving the state of assets.
The market price of a Bitcoin does not determine its store of value properties, the security does. Its high hashpower and supply cap is the root of its storage properties. Borderless, permissionless, portable — Bitcoin is already superior to gold as a store of value.
Wrapping it Up
Some can easily point out that Bitcoin’s technology is dated, inefficient, and even inherently flawed in token design, but Bitcoin has catalyzed an entirely new economy based on radical and trustless principles. I could write for years about the potential issues with Bitcoin, but I could do the same about the bridge I cross everyday for work. People still use it; People still believe in it; People still trust it.
While Bitcoin will always be the original cryptocurrency, there is room for innovation and improvement. Enter Nervos.
As an iteration of Bitcoin, Nervos Common Knowledge Base (CKB) is possibly where Satoshi would have taken Bitcoin next: introducing multi-asset storage and Layer 2 scalability.
Nervos is extremely similar to Bitcoin. Nervos utilizes Bitcoin’s UTXO model, taking the best of Bitcoin’s security and store of value base functionality and adding in the best bits of Ethereum and other smart contract platforms—flexibility and scalability, but without the trilemma dilemma.
While I don’t think crypto is going to be an accepted world standard next week, against the backdrop of the current global economy, the strengths of algorithmic value creation are obvious.
