5 reasons why Bitcoin is different from any other crypto asset
Bitcoin white paper was introduced in 2008 by Satoshi Nakamoto, a pseudonymous software developer (or group of developers) and the first Bitcoin transaction took place in early 2009. In the white paper, Bitcoin was described as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party”. The Bitcoin community has since grown exponentially and Bitcoin is today the leading cryptocurrency by market cap ($918 billion as of August 29). The second largest cryptocurrency on the market is Ethereum with a market cap of $377 billion. Together they represent 62% of the total crypto market cap.
In this article I’m sharing 5 reasons why Bitcoin is different from any other crypto asset.
1. Store of Value
Until Bitcoin’s invention human time has been the only scarce resource. The time a person dedicates to produce a good or service determines the amount that’s produced of that good or service. With technological progress the cost of a person’s time to produce a good or service has been reduced dramatically. However, we still face the never-ending problem of how to store the value we produce with our precious time on earth throughout time. The question is basically how can we store the value of our hard earned money? Before answering this question, I will define ‘store of value’. A store of value is an asset that maintains its value without depreciating. In other words the asset should overtime be worth the same or more.
With the introduction of Bitcoin in human history we have got access to a commodity absolutely limited to a supply of 21 million Bitcoins. The maximum supply of Bitcoins cannot be changed as there is no centralised power, such as a state, company or foundation behind Bitcoin, unlike other cryptocurrencies or fiat currencies (e.g. USD, EUR).
It’s technically impossible to increase the supply of Bitcoin to match an increase in the demand. A Bitcoin can be divided into 100 million satoshis. The more demand Bitcoin has, the more we can convert Bitcoin into smaller units of account. This means that there is plenty of room for the growth of Bitcoin in ever-smaller units as its value appreciates. Bitcoin can therefore not be inflated and its value can be preserved and even appreciated over time.
2. Completely Decentralised
Bitcoin is completely decentralised. Users don’t have to put trust in a central authority. Due to its decentralised nature, there is no single point of failure.
As previously mentioned, there is no centralised power, such as a state, foundation or company behind Bitcoin. As Saifedean Ammous states in his book The Bitcoin Standard “There is no management or corporate structure to [Bitcoin], as all decisions are automated and preprogrammed.” Once the volunteer coders in the Bitcoin community wants to change or improve the code, they present the changes and it is up to the users to decide whether to implement the improvements or not.
As Fabian Schär and Aleksander Berentsen explain in their book Bitcoin, Blockchain and Cryptoassets “The key innovation of Bitcoin is its refusal to engage a central authority”.
Bitcoin is the only completely decentralised cryptocurrency. Ethereum which is the second largest cryptocurrency on market by market cap after Bitcoin is led and controlled by Ethereum Foundation and Vitalik Buterin, one of Ethereum’s founders.
3. Economic Freedom
Another important aspect of Bitcoin is that it gives its holders economic freedom. A society based on economic freedom is a free-market society, where anyone can buy from or sell to a willing counter-party.
This is not a reality for all citizens of the world. Close to 2 billion of the World’s population are unbanked, and thereby they do not have an account at a financial institution or access to basic financial services. A large part of the world’s population are not just unbanked but also experiencing hyperinflation. Venezuela (2720% as of May 2021), Sudan (423% as of July 2021), Lebanon (101% as of June 2021) and Argentina (52% as of July 2021) are just some of the many countries suffering hyperinflation. As of August 21, 2021 Afghanistan is also running out of cash, which has led to the closure of banks and ATMs.
Bitcoin as an alternative financial system offers anyone owning Bitcoin the opportunity to send small and large amounts of value across the world without having to ask for permission to any person or institution. The wealth stored in Bitcoin is safeguarded.
According to Saifedean “Any person who owns Bitcoin achieves a degree of economic freedom which was not possible before its invention” (The Bitcoin Standard).
Bitcoin is the first form of wealth and asset class in human history that if stored properly can’t be seized and requires the non-public key(s) to confiscate. That’s why if stored properly, no authorities or governments can confiscate it.
The industry of bitcoin wealth protection is growing, which reflects the demand for bitcoin wealth protection.
5. Growing Demand for Bitcoin due to Inflation
The harmful impact of practices such as “money printing” and quantitative easing programs have led more and more companies to be worried about the high inflation rates and what has to come.
Housing prices are booming globally in the aftermath of the corona crisis leading to the highest growth in the last 20 years and inflation is expected to increase steadily over the next 10 years. There is no outlook for governments to reduce their public debt either. This combination brings back the concerns over potential threats to financial stability.
According to the CEO of MicroStrategy, Michael Saylor, MicroStrategy bought Bitcoin to avoid inflation.
Not just MicroStrategy has gone into the Bitcoin space. During the last 18 months we have seen a boom in public listed companies, asset managers and private companies acquiring Bitcoin. Tesla, Square, Marathon Digital Holdings and Coinbase, BlackRock are just some of the companies currently holding Bitcoin on their balance sheets.
You can find more info about Bitcoin Treasuries in Publicly Traded and Private Companies here.
When I decided to buy bitcoin in 2017, it was because I was blown away by the underlying technology as well as because I could see that we had the chance to distribute new wealth in a much better way than previously done. Time will show if this holds in the future, however today one of the most important aspects of Bitcoin is that it gives us access to preserve our wealth in times of high inflation without any state or authority being able to control it.