Bitcoin has established itself as a unique and revolutionary financial medium since its inception in 2009. It operates on a decentralized digital ledger, or blockchain, which enables secure and transparent peer-to-peer transactions without the need for intermediaries like financial institutions. With performance over the last ten years hovering around 60%, global markets have posed the questions: is it a store of wealth that can be sustained?
While Bitcoin falls under the title cryptocurrency, many question if it's a store of wealth. In The Wealth of Nations (1776), Adam Smith highlighted that “durable and scarce assets tend to serve as reliable stores of value.” He goes on to emphasize that stores of wealth must retain value over time. They must have utility and performance, as well as the ability to be secure without counterfeit risks.
What gives Bitcoin value/utility? The question is asked: “Well, if I can’t physically hold a Bitcoin, then how come people think it’s worth ‘x’ amount?” It's a point that has been held close to the large community that disregards its intrinsic value; However, when you take a technical dive, it's extremely flawed. Gold's value does not solely derive from its tangibility and utility. Let’s propose a question: If everyone received five grams of gold on their doorstep, what would happen to its market value? It's safe to say that those previously holding gold would receive less than they would’ve, given they waited to sell it after the supply increased. This illustrates gold's value is directly correlated to its scarcity. Leading to one of the fundamental drivers of Bitcoin’s value – its scarcity. This concept was seen on a global stage during the government's response to Covid-19. With the government scrambling to recover the economic losses caused by the pandemic, they focused their efforts on quantitative easing. The central control of monetary policy allowed the Fed/Treasury Department the ability to directly increase the M1 supply. “All-in spending was approaching $13 trillion as of mid-2021. That’s more than the US spent in its 13 most expensive wars combined” (Ron Surz, Nasdaq). While that stat is not adjusted for the change in buying power over the measured term, it ironically is the root cause of the relevance of adjusting for the buying power of a dollar. Unlike fiat currencies, which are controlled and printed at the discretion of a central governing body, Bitcoin has a fixed supply of 21 million coins. This cap cannot be changed and is enforced by its underlying protocol. As of now, approximately 19 million bitcoins have been mined, leaving a finite number available for future mining release.
As for security, transactions are verified and recorded on a blockchain, which is maintained by a decentralized network of nodes (validators and miners). This structure eliminates the need for a central authority, reducing the risk of fraud, censorship, or tampering. Each transaction is secured through cryptographic techniques, ensuring that funds cannot be spent twice or manipulated. It's interesting to note that there has never been a fraudulent or counterfeit transaction on Bitcoin’s blockchain since its inception. This ultimately has created longevity, instilling durability in the cryptocurrency.
Another reason Bitcoin could be considered a store of wealth is rooted in a blockchain flaw: The Blockchain Trilema. The theory suggests the challenge of balancing three key properties in blockchain systems: security, decentralization, and scalability. No cryptocurrencies have perfected all three, as mastering two of the concepts forfeits the third. Example: If a Bitcoins blockchain prioritizes faster transaction speeds (Scalability), that would jeopardize the dispersion of power (Decentralization), as allocating what was once a communal role of validation, is tasked to only a handful that posses hardware capable of processing mass amounts of data quickly. This limits who can participate in the maintenance of the network, ultimately sabotaging the decentralization of the network. If everything so far that is said is valid, then it would explain why Bitcoin’s strengths in security and decentralization limit its transaction speeds; ultimately, differentiating it from a ‘currency’ to a store of value.
In the future, Bitcoin will continue to check off more boxes, as it will play a greater role in financial systems as adoption grows. Major institutions and corporations have begun integrating Bitcoin into their operations, holding it on their balance sheets as a way to fight the diminishing buying power of fiat currencies. The potential ability to offer a digital currency that is unique and technologically advanced is what Bitcoin strives to complete; Furthermore, as of December 2024, the incoming administration has rumored talks of implementing a Bitcoin strategic reserve. This clearly would be bullish to bitcoin's value as Bitcoin has yet to see a leading world power utilize it on a global stage; ultimately, this implementation could help adopt mass recognition amongst public consensus revolving the debate on if it's a store of value.