Steps to understanding Bitcoin
The journey to fully understanding the potential of Bitcoin often follows a predictable path. Initially met with skepticism and ridicule, Bitcoin is often dismissed as a speculative fad or a tool for illegal activities. However, as early adopters reap substantial benefits, curiosity grows. According to data from Blockchain.com, the price of one Bitcoin has grown from just $0.08 in 2010 to over $70,000 by May 2024, creating many millionaires and billionaires during this time.
As understanding grows, Bitcoin transforms from a speculative investment into a legitimate asset class and a potential hedge against the vulnerabilities of the traditional fiat system. With global debt levels reaching $292 trillion by the end of 2021 (according to the International Monetary Fund), uncontrolled inflation eroding purchasing power, and the precarious state of Keynesian economics, Bitcoin emerges as a decentralized, scarce, and censorship-resistant alternative to the centralized monetary system.
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Final Realization: Bitcoin is a Better Savings Technology
Those who truly understand the fundamentals of Bitcoin eventually recognize it as a superior savings technology – an appreciable store of value that preserves and increases purchasing power over time. Unlike fiat currencies, which are subject to infinite supply and inevitable devaluation, Bitcoin’s fixed and decreasing issuance schedule, limited to 21 million coins, ensures its scarcity and long-term price growth. To date, over 19. million Bitcoins have already been mined, leaving less than 10% of the total supply yet to be released into circulation.
This realization inspires a change in mindset. Instead of viewing Bitcoin as a speculative asset to be traded for short-term gains, it becomes a long-term savings vehicle, similar to a bank account but without the reduction in purchasing power. As MicroStrategy CEO Michael Saylor famously said, “Bitcoin is the king of assets,” and once this truth is internalized, the temptation to “take profits” diminishes, and is replaced by a firm commitment to accumulate and hold Bitcoin as a superior currency.
Benefits of Bitcoin as an asset
Bitcoin’s dominance as the king of assets stems from its unique properties:
1. Rarity: With a fixed supply cap of 21 million Bitcoins, Bitcoin’s rarity is built into its protocol, ensuring that its value is preserved and increases over time as demand increases.
2. Decentralization: Bitcoin operates on a decentralized network, free from the control of any central authority or government, reducing the risk of censorship, seizure, or manipulation.
3. Borderless and permissionless: Bitcoin transcends geographical boundaries and can be sent and received without the need for an intermediary or permission from any entity, making true financial sovereignty possible.
4. Immutable and Transparent: The Bitcoin blockchain is immutable, providing an auditable and transparent record of all transactions, ensuring the integrity of the network.
5. Divisibility: Bitcoin can be divided into smaller units (satoshi), facilitating micro-transactions and increasing its accessibility and utility as a medium of exchange.
As traditional financial systems grapple with increasing challenges, Bitcoin’s value proposition is becoming increasingly attractive. While assets such as fiat currencies and government bonds are subject to devaluation and erosion of purchasing power, Bitcoin offers a reliable store of value and a hedge against financial turmoil. According to data from the St. Louis Fed, the purchasing power of the US dollar has declined by more than 87% since 1913, underscoring the need for alternative assets that preserve wealth over time.
The journey to understanding Bitcoin is a transformational one, taking people from skepticism to speculation, then to investing and hedging, and ultimately to the realization that Bitcoin is a superior savings technology – the king of assets. As this realization spreads, bolstered by solid data and real-world events, Bitcoin’s adoption and prominence in investment portfolios is likely to continue growing, solidifying its position as the premier asset of the digital age.
(The author is Vice President, WazirX)
,Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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