In order to understand why we need a store of value, you need to understand money and inflation. Once you understand that, then everything begins to make sense. Over time, your money is actually losing value due to inflation. The only way to counter this is to put your money to work by buying hard assets that not only appreciate in value, but grow at a rate higher than that of inflation.
There is a reason why Gold has been the most trusted store of value for thousands of years. A lot of the comparisons I will use to explain Bitcoin will tie back to Gold in someway, because Gold has had a longer track record. More importantly, some of those differences will also highlight the advantage that Bitcoin has over Gold.
Here are the 10 important things you must know about Bitcoin:
Store of Value - Bitcoin is supposed to be a digital representation of a store of value i.e. a place to park your money so it doesn’t lose value over time. Examples of other stores of value are hard assets like: Land, Real Estate and Art. This is why it is sometimes referred to as Digital Gold.
BTC - The trading symbol for Bitcoin is BTC. Just like the traditional stock market where stocks have trading symbols, so does the crypto market. So you can lookup market data and trade Bitcoin using the trading symbol BTC.
Immutable - Bitcoin is immutable, meaning it cannot be changed/replaced/manipulated because the data sits on a Blockchain. This is one of the key benefits of why Blockchain technology has become an important aspect of the crypto space. This is also why you will hear people say Bitcoin is not hackable. Your computer might be hacked or an exchanged might be hacked, but Bitcoin itself cannot be hacked.
Borderless and Permissionless - You will sometimes hear Bitcoin purists say “Not your keys, not your crypto”. This is because with Bitcoin, you are your own bank as long as you hold your own private keys. Bitcoin does not recognize borders, it is a network. You can perform transactions, anywhere/anytime 24-7-365 and without the need to ask anyone. Try sending $10,000 from a US account to an Account in Asia on a Sunday at 9pm using a traditional bank…or try moving your Gold out of one country to another. Good luck.
The Grandaddy of all Crypto - There is Bitcoin and then there is everything else. Everything else are called Altcoins. Some Altcoins include: Etherium (ETH), Litecoin (LTC), Stellar (XLM), Cardano (ADA). Similarly in the Precious Metals world, we have Gold and everything else (Silver, Copper, Platinum etc).
Fixed Supply - Scarcity is what creates value, this is why Gold has value. Not only because it is scarce, but because it also has utility. There will only ever be 21 Million Bitcoin that can be mined. The first block that was ever mined is referred to as the “Genesis Block”.
Supply Shock - A simple Supply/Demand math clearly exposes the fact that even every millionaire cannot own 1 BTC if it came down to it. So owning 1 BTC will automatically put you in the top 1%, if Bitcoin were to ever rise to the trajectory of what people see as a $1M bitcoin price in the future. So if demand were ever to rise whereby everyone in the world needed to flock to Bitcoin, the price will explode exponentially higher due to the limited supply.
The Halving - The halving is a process that Bitcoin goes through every 4 years whereby the amount of new Bitcoin that can be mined is cut in half. Based on historical patterns, a few months after each halving cycle typically creates a Bull Market for Bitcoin due to the mining supply being cut in half. First halving was in 2012. Second halving in 2016. Third halving in 2020. Next one will probably be in 2024 and so on, until all 21 Million Bitcoin are mined, which is estimated to be around 2140. So whenever Bitcoin pulls back and you are looking for a good time to re-enter, pay attention to the halving cycle.
Proof-of-work - The process of creating new Bitcoin is called Proof-of-Work. Proof-of-work is a protocol used because it requires you to burn energy, which in this case is in the use of a Computer’s processing power to perform complex and resource intensive calculations in order to mine Bitcoin. This process might be slow and expensive, but this is what makes the Bitcoin network strong and unhackable, because the “proof” that you mined the bitcoin is in the “work” that was done to generate it, which requires real energy to be exerted. This is analogous to mining Gold, which requires physical equipment, labor and digging to unearth it. You cannot just make up Gold out of nowhere.
Eight decimal places. Bitcoin can actually be broken down into fractions. This is how Fractional ownership of Bitcoin came about. 1 Bitcoin = 100 Million Satoshi. So let’s say you wanted to buy 0.00000100 Bitcoin, you are essentially buying (100,000,000 x 0.00000100) which is 100 Satoshi. Best way to understand it is similar to money. $1 = 100 cents. So let’s say you wanted to by something that is $0.88, you are essentially paying (100 x 0.88) which is 88 cents.
Immutability - Binance Academy
Bitcoin Halving, Explained - Coindesk
Satoshi USD Converter - 99 Bitcoins
As always, this is not financial advice. I use this as a way to journal my thoughts and share with anyone else interested enough to want to read this, as well as for educational purposes only.