Bitcoin, the world’s largest cryptocurrency, has a market capitalization of $1.6 trillion. In comparison, it accounts for more than half of the total worth of every cryptocurrency circulating in the industry. You might wonder what got Bitcoin to the point of becoming a once-in-a-generation catalyst and what exactly you were doing in 2010 when its value counted at $0.30. Many believe that Bitcoin surpasses all forms of currencies that have preceded it, but its value is determined in the same manner as with any other currency, which means the accomplishment of the six characteristics of money:
- Durability
- Portability
- Divisibility
- Fungibility
- Scarcity
In addition to those, political events, elections, and regulatory decisions influence crypto markets and, implicitly, Bitcoin’s price. The most dramatic example is linked to Donald Trump’s winning for president, when Bitcoin saw a significant crescendo for a new record-breaking, soaring the long-anticipated six-figure price barrier. Therefore, market analysts and investors have highlighted that cryptocurrencies are intertwined with global political dynamics, raising awareness of the digital assets’ potential to increasingly respond to policy shifts and political narratives.
Considering the many ongoing discussions regarding Bitcoin’s potential to outpace gold as the leading reserve asset, it might be time for you to analyze further what makes it a store of value and develop a foundational understanding of how to buy Bitcoin.
Scarcity
Bitcoin’s value is strongly related to scarcity, a feature linked to Bitcoin’s computer algorithm that mandates a finite supply of 21 million coins. Until now, the cryptocurrency market has seen only 18.9 million bitcoins, which means that 2.1 million bitcoins are still awaiting release.
Unlike fiat currencies, which are mainly governed by central banks that possess the authority to create unlimited currency at discretion, Bitcoin’s limited supply safeguards its value from dilution and prevents unfavorable events such as inflation or the devaluation of the currency.
Bitcoin’s scarcity is the main reason this cryptocurrency acts as a store of value, sharing many traits similar to gold. Its capped supply fosters demand and attracts more investors, actions that can lead to a significant increase in Bitcoin’s value over time.
Decentralization
Among the many distinctive qualities that define Bitcoin’s value, decentralization stands as its most paramount virtue, embodying both its strengths and revolutionary potential. Investors have long dreamed about the day when banks will be out of the equation, and peer-to-peer transactions will rule. Therefore, the notion of no central authority owning or controlling Bitcoin is the main motivation behind the first embrace of cryptocurrency. Bitcoin works on a distributed ledger system known as Blockchain and presents users with significant benefits:
- Transparency: Bitcoin’s transactions are fully transparent and accessible to all, fostering a system of integrity that remains impervious to manipulation for personal gain or malicious purposes.
- Security: Hackers continuously seek vulnerabilities to exploit and infiltrate systems. However, Bitcoin employs advanced cryptographic technology, rendering breaches of its Blockchain virtually impossible. Its security framework is multilayered, incorporating transaction hashing, block confirmations, and mining, each reinforcing the integrity and resilience of the network.
- Control: In the case of decentralized platforms, individuals have absolute control and custody of their funds. Their financial independence enables them to make transactions cheaper, faster, and with greater security than conventional monetary systems.
- Censorship-resistance: Blockchains are specially designed to secure a more substantial concept of freedom, meaning individuals can make transactions effortlessly and are impervious to confiscation. Transactions are censored just at the moment when they seem suspicious or undesirable.
Divisibility and Portability
Bitcoin’s divisibility refers to its ability to be divided into smaller units. This action facilitates the flexibility of making transactions with ease, whether we’re talking about a large transfer or a small purchase. Unlike gold, which ranks very low in divisibility, each Bitcoin can be segregated into 100 million units called satoshis.
For example, if one tried to buy a matcha latte with gold, that would not be very easy since the price of a matcha latte would account for way less than a gram of gold. In short, Bitcoin can be used for microtransactions while one would have to measure out a (very) small part of a gram of gold in the context of an exchange. Moreover, microtransactions are not possible or cost-effective when it comes to traditional fiat currencies due to high transaction fees.
Bitcoin’s portability stands in its ability to allow any consumer with an internet connection to be part of the global economy and benefit from financial services. As Bitcoin is a digital currency, it can be sent anywhere in the world within a few seconds, and it allows users to carry it wherever they go as long as they memorize their private key or store it on any personal device. Moreover, Bitcoin’s functioning doesn’t depend on any entity or government, which makes it available 24/7.
Technological Innovation
Bitcoin has the potential to bring reasonable improvement in the tech world, and not just for payment methods. It can spark a whole new wave of innovation, including enterprise blockchain applications, tokenization, sustainability, gaming, and supply chain tracking.
Bitcoin’s decentralized nature fosters opportunities for creating new products and services that were previously unattainable, such as the advancement of decentralized finance (DeFi) applications. This innovation has the potential to provide a more secure, transparent, and efficient alternative to traditional financial systems.
Final Thoughts
As you can see, Bitcoin indeed has the potential to become 21st-century gold, but it implies an equitable share of benefits and risks. You should remember that Bitcoin’s regulatory infrastructure and higher volatility make this asset precarious because you can either incur a substantial loss or benefit from a higher return on investment.
The final call to invest should come down to your goals and appetite for risks; Bitcoin would be a great addition for those with a moderately elevated risk tolerance, while gold is a more suitable option for cautious investors who seek a stable value appreciation.
