- A store of value is an asset that retains its purchasing power over time and can be readily exchanged for something else, such as fiat currency, precious metals, real estate, and property.
- A good store of value should be durable, portable, fungible, divisible, scarce, and verifiable.
- Bitcoin’s digital scarcity and decentralised nature have led some to view it as an attractive store of value.
- Learn how Bitcoin compares to gold in durability, portability, and other characteristics.
The concept of a store of value has been a significant aspect of human civilisation for thousands of years. As the world evolves and technology advances, the conversation around what makes an asset a reliable store of value continues to grow. The rise of cryptocurrencies, specifically Bitcoin, has sparked debates on whether this digital asset can be considered a legitimate store of value.
This article dives into the characteristics that could make Bitcoin a potential store of value and compares it to traditional assets like gold.
Understanding Stores of Value
A store of value is an asset that retains its purchasing power over time and can be readily exchanged for something else. Some common stores of value include fiat currency, precious metals, real estate, and property. A good store of value should be durable, portable, fungible, divisible, scarce, and verifiable.
Bitcoin as a Store of Value
Bitcoin’s volatility and current limited use as a means of exchange are areas of concern in the crypto space. However, being a relatively new but disruptive technology, it has shown some potential as a store of value. Bitcoin’s decentralised nature, digital scarcity, and global accessibility make it an attractive option for those looking for an alternative to traditional assets. Below are a few key aspects to analyse as to whether Bitcoin has potential as a store of value:
Bitcoin, as a digital asset, is not subject to physical wear and tear or degradation. It will exist as long as the decentralised network supporting it continues to operate, potentially making it a durable store of value.
Unlike gold, which can be cumbersome and expensive to transport and store, bitcoins are easily portable: They are stored digitally and can be sent across the globe quickly — a more convenient option for many users.
3. Fungibility and Divisibility
Every bitcoin is interchangeable with any other bitcoin, making it a fungible asset. Additionally, bitcoins are highly divisible, with each capable of being divided down to 1/100,000,000th of a unit, also known as a satoshi.
The supply of Bitcoin is capped at 21 million coins, making it a scarce asset.
5. Verifiability and Censorship Resistance
Transactions made using Bitcoin are recorded on a public, transparent blockchain, making them easily verifiable. Moreover, Bitcoin’s decentralised nature theoretically makes it difficult for any single entity to control or censor transactions — although this risk does exist (e.g., 51% attacks, where a group of miners gain control of more than 50% of a network’s mining hashrate).
6. Liquidity and Utility
Bitcoin’s liquidity has improved over the years, becoming more accessible for users. Although Bitcoin is currently not legal tender and generally not accepted as a payment method in many places, some businesses have started to experiment with it.
7. Stores of Value in History
Gold has a long history as a store of value, dating back thousands of years. Bitcoin, on the other hand, was created in 2009 and has a limited history in comparison.
The debate around Bitcoin’s potential as a store of value is an ongoing one. As its adoption grows and more use cases emerge, we will see whether the digital asset continues to demonstrate potential to serve as an alternative to traditional stores of value like gold and fiat currencies.