Shortly after my first steps into the world of Crypto at the start of 2021, I found myself in a debate over what Bitcoin’s future use and utility may be. At the time, even though I liked to imagine the result of being an early investor in a Bitcoin world, though I wasn’t fully convinced of either ‘digital cash’ or ‘digital store of value’ use case arguments. I was mostly invested in the blockchain technology for the huge volatile returns associated with a developing tech market.
The person I was debating with (much older and wiser than myself, with plenty experience in investing), continued to ask the question “why Bitcoin? What is the unique utility that will allow it to become a store of value over others?”
I found this tough to answer definitively as I listed the extensive benefits and qualities of blockchain tech, realizing that many of these qualities are not directly owned by bitcoin. Everyday new coins/tokens, although many being so-called “sh*t coins” and not being layer 1, are listed with the aim of having the same divisibility, transaction speed, low fees, security, anonymity and transparency as the bitcoin network. Though I do not see any of these as better alternative Bitcoin, it did put a dent in my bullish mindset of Bitcoin’s future when thinking of what next best thing can be created in a cryptoverse while it is developing at such fast pace.
Because of Bitcoin’s volatility and expected adoption rates, the use case of Bitcoin as digital cash is becoming increasing more difficult to picture in the short to mid term. Unless your are “all in” Bitcoin with all of your financial assets, why would you use Bitcoin as everyday cash when you expect it to 10x value in the future? You wouldn’t use 1BTC to buy a car at $40,000 when most investors are confident that 1BTC will be worth $100k in the coming years, possibly sooner. Anyone with a fraction of a Bitcoin is much more likely to ‘hodl’ their asset as a store of value that provides much greater benefit than buying depreciating assets. This example, accepted as unfeasible, allow us to move on from the use case of ‘digital cash’ and approach the ‘store of value’ concept.
For Bitcoin to become a strong ‘store of value’ asset, it must have a form of unique utility superior others...
As I continue, I will list these benefits in bold and draw a conclusion geared towards achieving a store of value.
The ‘store of value’ concept does not allow people to use Bitcoin for everyday transactions, at least until the market has gained mass adoption world wide and the market cap has settled out, reducing volatility on Bitcoin’s expected growth curve. In the meantime, it shows Bitcoin to serve as the best store of value while the world transitions from traditional monitory policies to a digital, decentralized monitory system.
Means of Exchange: can be related to Carl Menger’s widely accepted theory on the origin of money. Menger, the founder of the Austrian School of Economics, who’s theory on the origin of money is that each person had different goods required to suit a need, in order to acquire those goods, they had to trade with others. This became difficult as there was not always someone looking to trade for that exact good, leaving their good with no value without demand, a medium of exchange would be required to allow a trade to occur between multiple parties. The is where money became a valuable good according to Menger’s quote:
“not because they value the goods themselves for direct consumption, but because they believe the goods can be easily exchanged for other goods they wish to consume.”
Within the cryptovesre, Bitcoin is becoming more useful as a means of exchange as it is listed on almost all major crypto exchanges/digital apps and can be very quickly and cheaply converted to most cryptocurrencies/tokens whether it be finance projects, gaming tokens, nft tokens, or centralized stable coins for everyday use. In return, this also allows each of these assets to be returned to a Bitcoin for a store of value very quickly and cheaply when not in use and you do not want your capital to be at risk from other potentially depreciating factors associated with any given token/coin.
The potential risk associated with any crypto coin or token could be:
- Inflation - Stable coins that track a centralized currency care susceptible to inflation and decrease in purchasing power over time
- Market conditions - Any coin that is dependent on the demand of a market/project will always face risk of the supply-demand effect.
- Competition - Like all aspects of engineering, each project that is build in the crypto space will have competitors trying to improve and better it. Bitcoin has no direct Layer 1 competitors due to its originality of the blockchain network.
This makes Bitcoin an ideal means of exchange between daily use currency/tokens in the future. In the long term, as more and more people move to digital assets, why would I hold my saving in a bank account receiving 0.01% interest while being subjected to 7% inflation when I can uphold my saving’s purchasing power in BTC?
As is already the case on most exchanges and wallets at present, the total value of asset on the account are summed u and total in BTC, not fiat currency like USD.
This ability BTC has to be unaffected by the bullet point list above, gives it an inert property above others, that questions the ironic term ‘stable coin’ given to fiat trackers such as US tether. I believe most people will look for ‘store of value’ assets moving to the future.
Rarity: As there are only 21 million Bitcoin available...
The value will always remain high as an increasing number of people discover, learn and use digital currencies. The having reward in the year 2120 is set to be 0.00000018BTC, or 18SATS (satoshis) as it may be called then. For bitcoin to maintain this having method, the value of 1 Bitcoin will truly be astronomical as we will have to see high value in Satoshi’s to continue mining.
For example: in the year 2040, the reward for minors to mine a block will be cut to 0.19BTC with halving cycles from the current block reward of 6.25BTC. If the value to minors in 2040 is to be just as fruitful in purchase power as It is today, BTC value would have to multiply with a factor of 32 by then. That excludes inflation and the migration of potential cryptocurrency users which I will mention below.
I believe that the combination of the above (cheap and fast means of exchange, originality and rarity) does give bitcoin its own unique utility in the long term timeframe, thus a store of value. This utility will grow in use as the current momentum in the financial world grows towards digital asset control. Other previous stores of value like Gold and precious materials, do have many core uses that made it a desirable store of value but this cannot be moved or exchanged as quickly, cheaply, or freely across borders. Giving such less utility in a world where people want this at a touch of a smartphone.
Momentum will be key to holding up this ‘store of value’ case for Bitcoin...
As I said at the beginning of this note, I firmly believe that blockchain technology will be the next big life changing tech to be used worldwide, similar to the development of the internet. And just like the internet, no one could have predicted how it will be used and what form it will take 40 years down the line. However, aside form all the advantages up for debate, there is a natural momentum shift that will take place. As more people over the years grow up tech savvy and are will be open to understanding and using cryptocurrency, there will be an equal amount of the older generation, who never would get on board with the idea of cryptocurrency, that will be leaving inheritance to the younger generation, likely to be held as savings or investments in some digital form 30-40 years from now.
For example, my parents are still unsure and lack trust in everyday online banking apps, something I use everyday and probably would be in financial distress without. To them, idea of paying with smartphone wallets are very risky and the concept of holding money in a digital wallet on a blockchain is completely mind-blowing, it is condemned at the first mention of it.
The progression of this is that I’m sure my kids, in 10-15 years from now, will be substantially more tech savvy than my parents and most likely myself as well. They will have a natural exposure and understand to use the crypto world just as is did growing up with the internet. This will inevitably increase the number of blockchain users, bitcoin wallets and contribute heavily to mass adoption world wide, just as the internet did with the more people that use and understand it.
In 1998, according to 'www.internetworldstats.com', internet had approximately 147million users, 3.6% of world population. According to 'earthweb.com', cryptocurrency users are currently sitting just above this at 3.9% of world population. Plenty of headroom for crypto user to grow in the coming years as the above mentioned momentum shift takes place. As of March 2021, the estimated internet worldwide was 5.1Billion (65% world population).
It is also gradually becoming more common to see previous critics of Bitcoin begin to publicly hedge their bets by allocating a couple percent of their portfolio into the cryptocurrency.
This natural momentum shift creates a snowball effect in adoption of a bitcoin, with countries, banks, institutions all making headway into the cryptoworld trying to get ahead of the curve. This will result in Bitcoin application and interface becoming more user friendly, greasing the hinges for the incoming herd, just as internet banking has and continues to do.
In conclusion...
Because of all the above factors - I believe this momentum shift will continue to snowball from today, to allow us to reach mass adoption of Bitcoin faster than first thought. Though it may not be anytime soon that it is used for everyday transactions like money, it will be used as store of value to easily facilitate everyday use through other monies.
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