The crypto asset Bitcoin continues to attract public attention with a significant price spike in early 2024. However, many still misunderstand the difference between Bitcoin and fiat currencies.
This article will explore why Bitcoin, although relatively new, shows potential as a superior store of value in the digital age.
Ideal Money: Characteristics and Criteria
Ideal money should fulfill some basic criteria, such as:
- Durable: Not perishable.
- Easy to move: Can be moved globally with ease.
- Verifiable: Ownership is easy to verify.
- Breakable: Can be divided into smaller units.
- Scarce: Has a limited supply.
- Widely accepted: Used as a medium of exchange.
- Cannot be censored: Transactions do not require third-party approval.
Gold and Fiat Money: Pros and Cons
Gold and fiat money (such as the dollar or euro) have traditionally met most of these criteria with varying degrees of success.
- Gold:
Pros: durable, rare, widely accepted.
Disadvantages: difficult to move, cannot be verified easily, cannot be broken down easily.
- Fiat money:
Pros: Easy to move, verifiable, divisible, widely accepted.
Disadvantages: Not durable (can be counterfeited), supply can be manipulated by governments, can be censored by authorities.
Advantages of Bitcoin:
- Durable: It is stored digitally, making it almost impossible to corrupt.
- Easy to move: It can be moved globally in minutes, without the need for expensive and complicated physical transfers.
- Verifiable: Verification of ownership can be done with mathematical certainty through cryptography.
- Divisible: Divisible by 1/100 million (satoshis), which allows for easy transactions of small amounts.
- Rare: There is a limited supply of only 21 million, making it a scarce resource and potentially increasing its value in the long run.
- Uncensorable: Transactions can be made without requiring approval from a third party, providing a higher level of financial freedom.
Bitcoin: A Decentralized and Open-Source Network
Bitcoin operates on a decentralized network, controlled by no one, which makes it unique.
Bitcoin’s open-source nature allows programmers from all over the world to develop and contribute to its ecosystem, as well as create applications that use the Bitcoin blockchain without requiring permissions.
Conclusion:
Bitcoin, gold, and fiat money each have their place in the world of finance, with unique characteristics that set them apart from one another.
However, Bitcoin offers a number of advantages that make it an attractive option as a store of value in the digital age, albeit with price volatility remaining a concern.
With the ability to meet and exceed some of the key criteria of ideal money, Bitcoin shows potential as an innovative solution to the shortcomings of gold and fiat money, providing an alternative for people to store value according to their needs in the digital age.
