Bitcoin As a Store of Value: Gold and Digital Gold

By BitcoinGordon | BitcoinGordon | 3 Feb 2020

This is a brief thought piece; a reflection on some of the things that make Bitcoin a good thing.

When we think of gold as a store of value, it is an asset class that is revered for it's reliability and longevity. We see it as reliable because when we invest in it, there is something real, physical, tangible that we own in trade for our investment.

With Bitcoin, many would argue that part of it's inherent high risk is that it is virtual; it isn't really 'real'. So, one could easily ask themselves, what makes something real?

For instance, you send an email, and it does not hold the physical characteristics of licking a stamp and sending a physical letter, but the contents can contain the same information, where email has the benefit of reduced cost and instant receipt. But, there is something of physical, tangible value someone may revere from a physical note sent by snail mail.

With Bitcoin, there come the concerns that it could trend well over certain times, but eventually it could simply vaporize; it isn't real. But, that is what gets lost in translation by it's very design. To understand what Bitcoin is, is to understand it's true long term value. 

The blockchain network, for instance, is designed to add value to spreading information across numerous computers, so that information and the ability to transact is not limited to a central authority. It cannot be easily gamed, and it cannot be easily hacked. Someone could steal your gold, and someone could steal your Bitcoin, but there are protections against both examples.

Store of value means that someone perceives a reason that placing monetary value into gold, and into Bitcoin respectively, is likely to increase in value over time. Not only is it a safe way to maintain a dollar's unit of value, but one believes it will be worth that $1 or more, as time goes on, where the dollar itself has a history of decreasing in value. The hope is that it goes far above the start value, but it is a protection that it will at least sustain the value and not decrease like the source.

What makes physical gold worthy of it's stature? One would say scarcity, and that is partly true. It has a history of being valued because it is pretty, because it can be melted down and painted, molded into artwork, glazed, made into leaf for adorning surfaces. If it didn't look pretty, we might have leaned just as much towards mud or something else in abundance. But, it is the combination of value and scarcity that make the special connection.

With Bitcoin, this model is perfected, quantified, and then digitized. It is attractive because it started on the right leg; the cryptography and resolution to securing the payment had a massive appeal to the original users who would like Bitcoin in theory. When the code worked, it proved the mining of gold was now positioned on the internet, and people could join the original wild west mindset that led to gold's most recent surge in value. The fact that gold was discovered, but Bitcoin was designed, proves that we are entering into one of the truly interesting experiments in all of history.

In reality, we don't know exactly how much gold there is left to mine. Certainly, the more we find, the less there is to discover. Meanwhile, there is a lot of it on the market, in jewelry, coins, rough nuggets, gold leaf, and as it is bought and sold, there is value at market. But, if it gets increasingly harder to find, it will likely go up in value. This is true as long as governments don't threaten to confiscate it... again. It's happened, and it could, likely will, happen at some other time in the future.

Bitcoin faces some of the exact issues. But, amazingly, it was designed to take advantage of scarcity and it's initial desirability to place economic principles into action. There are a finite number of Bitcoins allowed to be created, and they get harder to make, or mine, as time goes on. Assuming gold, and Bitcoin, both get tougher to find and most likely reach an end to supply some time in the relatively near future, the assumption is that the longer one buys, holds, and continues to re-invest, the more intense the pressure will be on the supply that exists. The threats to the model more than anything else, are identical; government intervention. It takes one wave of a magic wand to determine the greatest stores of value useless, but something tells me believers both in the physical and digital, will see a way to find value in such a thing regardless of what anyone says. That, perhaps, is the true treasure to a great store of value. The more one knows about it, the more they value it, and will work to attain it.

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Hi! I'm Gordon Freeman (I hear they made a likeness of me in some video game... totally unrelated... or...).


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