Bitcoin has emerged as a groundbreaking digital asset with the unique characteristic of being a finite resource. It introduced a revolutionary financial concept: a strictly limited supply of 21 million coins, establishing itself as a digital alternative to traditional stores of value like gold. Bitcoin addresses a core economic challenge—inflation—by providing a deflationary asset that enables people and institutions to hold their wealth without worrying about value erosion over time. In a world where fiat currencies are constantly devalued by inflation, Bitcoin offers a promising solution as a "store of value" asset.
With only 21 million coins, Bitcoin presents an alternative to traditional currency. The scarcity of Bitcoin fundamentally changes how we think about money and value storage. Once the final Bitcoin is mined in 2140, inflation will no longer be a factor for this digital asset. In comparison, traditional stores of value are subject to inflation: gold has a historical inflation rate of around 15.1%, while Bitcoin, as calculated, has experienced only a 0.1% inflation rate after 100 years. This limited supply creates a strong incentive for individuals and corporations to store wealth in Bitcoin as a long-term investment, making it a modern hedge against the devaluation of fiat currency.
The Evolution of Bitcoin: From Currency to Digital Gold
Initially, Bitcoin was widely discussed as a peer-to-peer payment system, which allowed individuals to make transactions without involving third-party intermediaries like banks. This decentralized payment approach enabled people to buy everyday items, leading to stories of Bitcoin being used for small purchases, such as the famous "Bitcoin Pizza" transaction in 2010, where 10,000 BTC were used to purchase two pizzas. This demonstrated Bitcoin's functionality as a medium of exchange and laid the foundation for Bitcoin's early adoption. However, as Bitcoin's value surged, its role evolved.
From 2017, Bitcoin’s image shifted. The media and financial
communities began to describe it as "digital gold," a safe haven that
could be used to preserve value over time rather than simply as a transactional
currency. This shift was driven by increasing institutional interest in
Bitcoin, with major investors recognizing its potential to hedge against
inflation. As Bitcoin's price increased, so did its purchasing power,
transforming Bitcoin from a mere currency into a valuable asset for long-term
investment.
The Influence of Michael Saylor and Institutional Investment
One of the most influential figures in reshaping Bitcoin's role as a store of value is Michael Saylor, co-founder of MicroStrategy and previously served as Chief Executive Officer from 1989 to 2022. Saylor was initially skeptical about Bitcoin but began to reconsider it in April 2020, when the COVID-19 pandemic disrupted global financial markets. By August 2020, Saylor’s perception of Bitcoin had evolved significantly, leading him to invest personally $175 million to acquire 17,732 BTC at an average price of $9,882 per BTC. Saylor saw Bitcoin as a way to preserve purchasing power and combat the inflation that was eroding cash reserves.
Then, Saylor convinced MicroStrategy company to continue to
purchase Bitcoin, making waves in December 2020 by issuing corporate bonds to
raise $650 million solely to buy more Bitcoin, solidifying its position as a
long-term asset. Currently, MicroStrategy owns 252,220 bitcoins as of Sept. 20,
2024. MicroStrategy states the average purchase price as $39,292.18 USD per
Bitcoin with a total cost of $9.91 billion USD. Saylor’s actions signaled a
turning point, showing that Bitcoin was not just a theoretical store of
value—it was a practical solution for corporations with large cash reserves.
His endorsement was a catalyst, encouraging other companies and investors to
consider Bitcoin as a legitimate way to safeguard wealth.
(Source of image: https://treasuries.bitbo.io/microstrategy)
Inflation and the Erosion of Wealth
A major reason behind Bitcoin’s appeal as a store of value is its ability to resist inflation, which is a significant factor in fiat currency depreciation. Inflation quietly reduces the purchasing power of money over time, meaning that the same amount of currency buys fewer goods and services as prices rise. This has been an issue since the Federal Reserve (FED) was established in 1913 to manage the U.S. dollar. Over time, the value of the dollar has declined significantly: a dollar issued in 1913 has lost approximately 99% of its purchasing power.
For example, in 1913, you used 1 dollar to buy 100 eggs, but in 2024, you use that 1 dollar but can only buy 1 egg (just an example), you lose 99 eggs, why, who stole 99 eggs from your pocket?. Today, that same dollar buys only a small fraction of the original items, meaning that individuals and companies holding cash are effectively losing wealth year after year. Inflation dilutes currency value by increasing the money supply, which decreases the value of each individual dollar. This process is similar to adding more water to a pot of soup—it eventually dilutes the flavor and quality of the original soup, making each portion less valuable.
While governments aim to manage inflation through monetary
policy, real inflation often outpaces official figures, eroding the wealth of
those holding primarily cash assets. This issue is not unique to the United
States; countries worldwide have experienced varying inflation rates, impacting
local economies and personal wealth. In the United States in 2023, for
instance, the government reports an inflation rate of around 4.1% (https://www.investopedia.com/inflation-rate-by-year-7253832) but in reality, the cost of goods
has increased much faster, with some items costing significantly more than they
did a decade ago. Bitcoin offers a promising solution to this problem, allowing
individuals and institutions to protect their wealth from inflation.
Storing Wealth: Traditional and Modern Approaches
Historically, people have used various assets to store wealth, aiming to preserve purchasing power over long periods. Traditional stores of value include cash, gold, real estate, and stocks. Each asset has advantages and disadvantages regarding liquidity, portability, and inflation resistance.
1. Cash:
Cash is one of the most liquid assets, but it loses value over time due to inflation. This is especially problematic for individuals with significant cash holdings, as inflation reduces the purchasing power of their wealth. For most people, holding large cash reserves is not a viable way to preserve long-term value, as inflation will continue to erode its worth.
2. Gold:
Gold has been a widely trusted store of value for thousands of years. During times of economic uncertainty or currency devaluation, people have turned to gold as a safe haven. However, gold is not without its drawbacks. Its value is subject to inflation, as more gold is mined each year, increasing the total supply. Additionally, physical gold is cumbersome to store, transport, and verify, making it less practical in the digital age. For example, people in Ukraine today and many conflict-ridden areas around the world today, they can turn to gold to preserve value, but how can they transport and store gold safely and conveniently. It is a headache, if a citizen wants to leave their country, Ukraine for the US with $100 million worth of gold.
3. Real Estate:
Real estate has long been a popular store of value, which individuals view as a stable investment. Real estate typically appreciates over time, making it a valuable long-term asset. However, it is also illiquid, and selling property can be time-consuming. Furthermore, real estate is subject to property taxes, which can diminish its net value over time. The value of real estate also depends on political stability and economic conditions.Wars throughout the ages in the world have given us many lessons about the struggle for property, when one country invades another, what do they want, resources, labor and "real estate".
4. Stocks:
Stocks are a viable option for wealth preservation, especially blue-chip stocks of established companies. However, they come with risks tied to the success of individual companies and broader market volatility. The value of stocks is inherently linked to the operational success of companies, which may or may not endure in the long term. For corporations, relying solely on stocks is insufficient to hedge against all risks, leading many to diversify their portfolios by including Bitcoin.
5. Bitcoin:
Bitcoin introduces a new asset class that combines the advantages of traditional stores of value while addressing their shortcomings. Unlike cash, Bitcoin is resistant to inflation. It is more portable than gold, and unlike real estate, it is highly liquid. Additionally, Bitcoin’s decentralized nature and limited supply make it a valuable long-term investment in a world where fiat currencies continue to depreciate.
The Role of Trust in Currency Systems
A crucial element of any currency system is "trust." Societies throughout history have relied on various items to serve as currency, including shells, stones, gold, credit cards, and later Bitcoin. Modern fiat currencies are backed by governments and central banks, which issue and regulate currency. I believe in the US dollar bill in my wallet, you believe in the Japanese yen bill in your wallet, we all have "faith" in a piece of paper that is inherently worthless, guaranteed by the state that it can be used to buy "something". But what happens when that faith weakens, and the state becomes ineffective or disappears? Does that piece of paper return to its original value? As "paper".
Bitcoin offers a unique solution by eliminating the need for a central authority. Its decentralized structure ensures that trust is not placed in a government or institution but in the transparent, publicly accessible blockchain technology. The blockchain, a digital ledger of transactions, ensures transparency and reduces the need for intermediaries, creating a trustless system. This is especially attractive for people in countries with unstable currencies or governments, as Bitcoin provides an alternative to fiat money that is independent of any centralized control.
In contrast, traditional currencies rely on the reputation
and stability of issuing governments. When that trust erodes, as it has in
countries like Venezuela, fiat currency loses its value rapidly. In 2014, the
annual inflation rate reached 69%, the highest in the world. In 2015, the
inflation rate was 181%, again the highest in the world and the highest in the
country's history at the time. The rate reached 800% in 2016, over 4,000% in
2017, and about 1,700,000% in 2018, and reaching 2,000,000% with Venezuela
spiraling into hyperinflation. Bitcoin’s
decentralized nature offers a compelling alternative, one that allows people to
store and transfer value securely without depending on government stability.
Bitcoin’s Unique Characteristics as Digital Gold
Bitcoin has many attributes that make it similar to gold, but it also surpasses gold in some respects. This has led to its label as "digital gold," an asset that holds intrinsic value and can be used to preserve wealth.
1. Scarcity:
Bitcoin’s supply is fixed at 21 million coins, making it scarcer than gold, which has an unknown total supply. This scarcity contributes to its value, as demand grows with limited supply.
2. Divisibility:
Bitcoin is highly divisible, with each coin broken down into 100 million smaller units called satoshis. This feature allows for flexibility in transactions and makes it accessible for small purchases and large investments.
3. Auditability:
Bitcoin’s blockchain is updated approximately every 10 minutes, allowing for transparency and easy auditing. Each transaction is recorded and can be verified by anyone, providing a level of transparency not available with traditional assets.
4. Portability:
Bitcoin can be transferred across borders instantly, which is ideal in a globalized world. Unlike gold, which is cumbersome to transport, Bitcoin can be moved electronically without physical limitations.
5. Weightlessness and Borderlessness:
Bitcoin does not require physical storage or operate within national borders, making it a truly global asset. This independence from government regulation adds to its appeal.
6. Decentralization and Security:
Bitcoin operates without central authority, making it resistant to censorship and counterfeiting. No single entity controls Bitcoin, which reduces risks associated with centralization.
7. Resilience to Hacking:
To date, Bitcoin’s blockchain has proven highly resistant to hacking. As the network grows, the security improves, making it one of the most secure digital assets available.
Bitcoin's characteristics make it
an innovative store of value, providing advantages that traditional assets
lack. Its scarcity, divisibility, and portability give it an edge over gold,
and its decentralized nature makes it a secure, borderless option for
preserving wealth.
Many of you argue that you will create a coin that is scarcer, faster, lighter, smarter with more functions, more secure, and you will destroy and replace Bitcoin. No one can predict the future, but that idea is not only yours, but millions of other people in the world think the same. The proof is that currently in the crypto market, there are more than 9,000 coins & tokens operating (not counting those that died when they could not last a few years). But when looking back at the rankings from its inception to the present (Bitcoin was born in 2009), Bitcoin still holds the number 1 position, and has never dropped to the second position.
The Future of Bitcoin in Global Finance
Bitcoin’s success has positioned it as a leader in the digital financial landscape. Just as Facebook maintains a dominant position in social media, Bitcoin has solidified its place as the primary digital store of value. While other cryptocurrencies have emerged, Bitcoin remains the most recognized, widely used, and valuable. Bitcoin's strength is not in competing with traditional payment systems but in facilitating secure, large-scale transactions. Its potential lies in offering a "store of value" that is both liquid and resistant to inflation.
For individuals and institutions alike, Bitcoin provides a unique way to store and transfer wealth, regardless of national borders or government policies. As technology advances and global economies become more interconnected, Bitcoin’s utility as a store of value and medium for large transactions is likely to expand, offering an innovative solution to the challenges of preserving wealth in an ever-changing financial landscape.
Conclusion
Bitcoin represents a paradigm
shift in how wealth can be stored and transferred in the digital age. Its fixed
supply, deflationary design, and decentralized governance model offer a unique
hedge against inflation. By providing an alternative to traditional stores of
value like cash, gold, and real estate, Bitcoin enables individuals and
institutions to preserve purchasing power in a modern, accessible form. Store
95% of your wealth in crypto and keep 5% in cash for payments.
What Bitcoin does is move hundreds of millions, billions, hundreds of billions of dollars, around the world quickly, with extremely low fees and extremely high reliability, and no one can stop you from doing that transaction. That's the power of Bitcoin. As Bitcoin continues to evolve and gain acceptance, its role as “digital gold” strengthen, providing a viable solution for storing value in a world where fiat currencies face ongoing challenges.
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