Why Bitcoin is the Ultimate Wealth Preservation Technology

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Psychologists who study evolution believe that the ability to "preserve riches" was the deciding factor in modern humans' evolutionary success. In his article "Shelling Out: The Origins of Money," Nick Szabo tells a fascinating tale about this. After the arrival of Homo sapiens to Europe around 35,000 B.C., they ousted the native Homo neanderthalensis population and caused a boom in the region's human inhabitants. Although homosapiens had the same volume of brain tissue as Neandertals, they also possessed weaker bones and less muscular body mass, making it hard to fathom why they were so successful in replacing their predecessors. Wealth transfers made easier or more achievable by collectibles may have been the most important factor. The evidence suggests that Homo sapiens enjoyed shell collecting, adorning themselves with shell jewellery, displaying their jewellery to others, and trading their shell collections.

Therefore, the ability to save money is crucial to the development of a civilised society. Throughout history, there have been numerous wealth preservation systems, each of which has evolved and adapted in accordance with the state of the art. The goal of any technology designed to preserve riches is the safekeeping of that wealth. Handmade jewellery is the most primitive style. In the following, I'll contrast bitcoin with the four most popular wealth preservation technologies of the present—gold, bonds, real estate, and stocks—to demonstrate why these options fall short and how bitcoin might streamline the process of saving and investing for the future. To that end, I'll be concentrating on exchange-traded funds (ETFs) as a type of long-term investment in the stock market.

What Characterizes a Good Store of Value?

As Vijay Bojapati explains, in a market where several value stores compete with one another, the factors that set one apart from the others are the ones that ultimately determine which one succeeds. To be a reliable savings mechanism, an asset must meet the following criteria: scarcity, longevity, portability, fungibility, divisibility, and divisability. Based on these characteristics, we choose which objects to use as money. Jewelry is an example of a scarce item that is not fungible because it is easily destroyed, cannot be divided, and cannot be exchanged for another.Gold excels in all of these regards. Gold has surpassed jewellery as the most popular technological innovation among humans over the last five thousand years.Yet digital disruption has hit hard ever since Bitcoin was released in 2009. Nearly every aspect of storing value can benefit from being digitised. Bitcoin is superior to gold in the digital era not simply as a store of value but also because it is essentially digital money.

Bitcoin vs. Gold

When it comes to durability, gold is without peer. The majority of the gold that has been extracted from the earth is still there. Bitcoins are decentralised ledgers of digital transactions. Therefore, the longevity of the institution that issues them is more important than the longevity of their physical form. Although there is no central bank issuing Bitcoin, the network that backs them up should ensure their longevity. It is too soon to tell how long it will last. Nevertheless, there are indications that the Bitcoin network has shown exceptional "anti-fragility" by continuing to function despite attacks and attempts at regulation from several nations over many years. It has a near-perfect uptime of 99.99%, making it one of the most reliable computer networks ever.

Bitcoin's portability exceeds that of gold since data can travel at the speed of light (thanks to telecommunication). Gold's allure has waned in the Internet age. Gold is not transferable via the web. There is currently no way to take your online gold with you. Our historically gold-based monetary system has been struggling due to the inability to digitise gold for decades. With the advent of electronic currency, it became increasingly difficult to ascertain whether or not individual national currencies were backed by gold. Gold's heavy nature also makes it challenging to move it across international boundaries, which complicates international trading. The current fiat-based monetary system exists because of the inflexibility of gold. Bitcoin solves this problem because it is a native digital scarce commodity that can be transferred easily.

GOLD STORAGE VS. BITCOIN STORAGE

Bitcoin's divisibility is superior to that of gold because it is entirely digital. In practically every way, information may be split and recombined for little or nothing (like numbers). The smallest possible fraction of a bitcoin is 100,000,000 satoshi. The gold, on the other hand, is tricky to fractionize. You'll need specialised equipment and run the risk of losing some gold (even if it's merely dust) in the process.

Gold is fungible; it can be marked with an engraving to identify it, but it can also be melted down and used interchangeably. Fiduciary integrity is "tricky" with bitcoin. Bitcoin is a type of digital information, which is the most easily measurable substance in the cosmos (like the written word). But because all bitcoin transactions are public record, governments can prohibit the use of bitcoin that has been used for criminal activity. which would have a detrimental effect on bitcoin's fungibility and its utility as a means of exchange because if bitcoin were no longer fungible, its value would fluctuate based on where it was kept. Bitcoin's ability to store value is unaffected by this, but its acceptance as currency may suffer as a result, thus lowering its value. While gold's fungibility is superior to that of bitcoins, the latter's portability makes gold useless as a means of exchange or digital store of value.

With an annual inflation rate of 1.5%, gold is becoming increasingly scarce. However, production is not limited in any way. Every so often, a fresh vein of gold will be uncovered, and who knows, maybe we'll even find some massive quantities out here in space. The price of gold is not totally elastic. Gold miners may become more productive when gold prices rise, leading to a larger supply. Furthermore, it is impossible to verify whether or not actual gold has been adulterated with less valuable metals. In addition, gold stored in digital wallets through ETCs or other goods sometimes serves more than one purpose, making it harder to regulate demand and driving the price down. Bitcoin, on the other hand, has a fixed quantity that will never increase above 21,000,000. By design, it will cause a deflation in the money supply.

At 1.75 percent per year, Bitcoin's inflation rate is low and falling. Every four years or so, the protocol code stipulates that bitcoin mining rewards will be cut in half. Its inflation rate will be practically nonexistent in ten years. In 2140, the final bitcoin will be mined. In the future, the Bitcoin inflation rate will be zero every year.

While auditability is not in and of itself a selling point for a store of value, it is nonetheless relevant since it reveals whether or not a store of value is appropriate for a just and transparent monetary system.

A tiny unit can clearly hear Bitcoin transactions. No one can say with any certainty how much gold or US dollars are in circulation. As Sam Abbassi pointed out to me, Bitcoin is the first totally public and globally auditable asset. The risk of rehypothecation, in which financial institutions use the collateral provided by their customers for their own benefit, is mitigated in this way. It eliminates a huge potential threat to the financial system. Banks and other financial institutions can now provide proof of reserves by revealing their bitcoin address or transaction history.

Bonds vs. Bitcoin

Among the earliest works on value investing and a classic of finance, Benjamin Graham's "The Intelligent Investor" was published in 1949 by the British-born American economist, professor, and investor Benjamin Graham. Because bonds, in his view, cushion investors against the volatility of the stock market, he advocates a "balanced portfolio" of 60% equities and 40% bonds.

However, I believe bonds, and especially government bonds, have lost their role as a hedge in a portfolio, even though much of what Graham stated back then still makes sense today. Our bond-based monetary system is in peril because bond yields are falling behind the rate of money inflation.

This is because many national governments, which are the backbone of our monetary and financial systems, are experiencing financial difficulties. The implied risk of default by a government was effectively zero when government balance sheets were in good shape. That's because of two factors. First, their taxing authority Second, and perhaps more importantly, they have the ability to print money to reduce their debt. While this was a valid point of view in the past, Greg Foss now explains that printing money has become a "credit boogie man."

It's true that there is more money in circulation than ever before, thanks to governments. A broad measure of the stock of dollars, known as M2, increased from $15.4 trillion at the beginning of 2020 to $21.18 trillion by the end of December 2021, according to data from the Federal Reserve, the central banking system of the United States. An additional $5.78 trillion, or 37.53 percent of the total dollar supply, has been created. As a result, the average annual inflation rate over the last three years for the value of the dollar has been above 10%. Less money is being made off of U.S. Treasury Bonds.

To compensate for risk and opportunity cost, one should theoretically be able to receive a positive return on their money by parting with it today.However, when inflation is factored into bond prices, bondholders are now legally obligated to suffer a loss. Not only that, but there is the potential for widespread breakdown. Bonds are a cornerstone of the global financial system, and they are extremely vulnerable due to the system's current state of disrepair.

There is a ridiculous quantity of credit available. As a result of central banks' lax stance on debt in recent decades, several countries' governments have racked up massive amounts of debt. Already, both Argentina and Venezuela have defaulted on their debts. More debt defaults by governments are possible. They can still repay their debt by printing additional money, notwithstanding the default. However, this would lead to a devaluation of a national currency, which in turn would lead to inflation and reduce the appeal of most bonds, which already offer very modest rates.

For the past 50 years, whenever stocks dropped in value, investors hid their money in the "safety" of bonds, which rose in value during "risk-off" periods. Because of this dynamic, the 60/40 portfolio was able to flourish until March 2020, when central banks flooded the market with money, causing it to crash. Efforts to stabilise bond prices will only raise Bitcoin's demand in the long run.

Graham believed that it was more important to keep your money safe than to make it expand. Bitcoin enables the decentralised storage of value without the risk of credit or counterparty risk.

Bitcoin Versus Real Estate

Due to the extreme inflation of the past few decades, it is no longer sufficient to simply save one's wealth in a savings account. Therefore, many people prefer to keep a sizable amount of their capital in one of the most stable markets: real estate. Bitcoin competes with physical property in this regard since its features make it a desirable medium of exchange and safe haven for wealth. There is a limited quantity, but it is easily transportable, divisible, lasting, fungible, resistant to censorship, and does not require incarceration. As a medium to store wealth, real estate is inferior to bitcoin. Bitcoin is more difficult to seize since it is scarce, liquid, mobile, and decentralised. It can be transmitted at the speed of light to any location on Earth for next to nothing. However, real estate is both simple to confiscate and difficult to liquidate during times of crisis, as was recently demonstrated in Ukraine, where many people turned to bitcoin to hide their riches, accept transfers and gifts, and cover their basic living expenses.

Michael Saylor discussed the drawbacks of real estate as a safe haven in a recent interview with Nik Bhatia. Saylor emphasised the need to keep up with the upkeep of any property. Real estate is expensive due to rent, maintenance, and property management. To most people, commercial real estate is boring because it requires a large initial investment. Second-tier real estate investments like real estate investment trusts (REITs) have also fallen short of actually possessing the asset, despite attempts to make it more accessible.

If Bitcoin (a form of digital property) continues to gain popularity, it could eventually supplant land (a form of physical property) as the go-to place to stash cash. As a result, the monetary premium that comes with using a tangible asset as a store of value may evaporate, and the asset's value may fall to its utilitarian value. Given that bitcoin is only at the beginning of its adoption cycle, its future return will be significantly higher than that of real estate. Furthermore, it is likely that the returns on real estate investments will be lower than they have been in the past. There has been an almost 70-fold increase in home prices since 1971. Furthermore, governments tend to tax citizens at times like this, as pointed out by Dylan LeClair in his article turned podcast, "Conclusion Of The Long-Term Debt Cycle." Properties are difficult to transfer between jurisdictions and are subject to high tax rates in each. Bitcoin taxes should not be applied capriciously. Being beyond the reach of any single authority makes it immune to confiscation and censorship.

Bitcoin versus ETFs

Index investing, a passive investment technique in which a manager needs to do nothing more than make sure a fund's holdings match those of a benchmark index, is the conceptual ancestor of exchange-traded funds (ETFs). The Vanguard 500, the first index fund, was created by Vanguard Group founder Jack Bogle in 1976 to mimic the performance of the S&P 500. Over $10 trillion is currently being managed through ETFs. Bogle held the opinion that actively picking stocks was a waste of time.He mentioned in several interviews that an individual fund manager had a 3% chance of outperforming the market on a long-term basis. He reasoned that regular people investing their money would have a hard time outperforming the market and made it a top priority to develop low-cost investment options that would still provide them a chance to benefit from rising asset values and build their nest eggs. Index funds often generate higher tax-efficient returns since they require fewer trades to maintain their portfolios than funds with more active management strategies. The ETF concept has merit, but Bitcoin has more practical applications. While ETFs make it easy to diversify your portfolio, you are still restricted to investing in just one index, sector, or geographical area. However, when you purchase bitcoin, you are actually purchasing a measure of human output. To compare Bitcoin to an ETF would be an understatement. I'll break it down for you:

By this point, the potential of Bitcoin should at least be common knowledge. Bitcoin is a peer-to-peer digital currency exchange and storage system that operates on a decentralised network of computers. In addition to being the most valuable currency in circulation, bitcoin also serves as the underlying protocol for the fastest and most secure payment system currently available (the Lightning Network). In the not-too-distant future, Bitcoin will very certainly replace all other payment networks and serve as the primary digital currency and value-storage medium. It will thereafter serve as a measure of global output. In a nutshell, the larger the demand for bitcoin, the higher the price of bitcoin will be because the more value we produce and the more transactions we will perform, the more value will need to be held. I've realised that rather than buying an exchange-traded fund (ETF) to follow a handful of indices, I can just buy bitcoin and benefit from the world's collective efforts. Since its debut, bitcoin's returns have naturally surpassed those of any ETF.

VERSUS BITCOIN RETURNSETFS RETURNS

One of the oldest and most popular ETFs is the SPDR S&P 500 ETF Trust. It's made to mirror the performance of the S&P 500 index. As of October 25, 2022, the performance was 168.0%, which works out to an annualised return of 16.68% for the past decade (from October 26, 2012, to October 25, 2022). Not bad, considering the minimal effort required to achieve these results by simply holding.

Bitcoin, on the other hand, gained 158,382.362 percent during the same time frame. greater than 200% annually. The common adage that "the past is no guarantee of the future" might actually be true. Bitcoin, on the other hand, is different. In general, the greater a stock's P/E ratio, the more volatile it is. Certainly not bitcoin.When the price of bitcoin rises, investors can feel safer putting their money into it because of its growing liquidity, size, and global preeminence. At this point, the Bitcoin network has grown to a scale where it WILL survive (the Lindsay Effect).

As a result, we may assume that bitcoin will keep doing better than ETFs in the future.

Bitcoin also offers other benefits that an ETF lacks. To begin with, it has a cheaper overall price. The second is that the latter is a portfolio of securities owned by an unrelated person. Your ability to sell your ETFs is restricted. Your exchange-traded funds (ETFs) will be lost if your bank decides to cancel your account. However, Bitcoin is difficult to confiscate or restrict access to. The ease with which bitcoin may be transferred across the globe at the speed of light makes confiscation extremely difficult.

CONCLUSION

For the sake of securing financial assets in the digital era, Bitcoin is the best option. a rare, non-inflationary, digital-native bearer asset that carries no risk of default and may be easily transferred between parties. Bitcoin is a digital currency that can be traded on the Internet. The Bitcoin network has the potential to hold all of the world's wealth (global wealth hit a record high of $530 trillion in 2021, according to the Boston Consulting Group), making it potentially the most efficient way humans have found to store value. Bitcoin holders can be assured that their wealth will grow by a factor of ten, one hundred, or even five hundred during the early stages of the cryptocurrency's monetization process. If you can wait it out for a couple of decades,

FAQs

Who sets the value of a bitcoin?

Bitcoin's price is set by the market on which it trades. In other words, the value of a bitcoin is set by the demand for it. Bitcoin's price is influenced by market forces, just like those influencing the cost of other commodities such as gold, oil, sugar, grains, etc.

In how many days can one bitcoin be mined?

One bitcoin can be mined in around 10 minutes with the right hardware and software, but this setup is expensive and only available to a select few individuals. The average user can mine a bitcoin in 30 days, which is both common and reasonable.

Explain why Bitcoin is a terrible investment?

Bitcoin, the most valuable cryptocurrency, is a volatile and high-risk investment. Only those with a high tolerance for risk, solid financial resources, and the ability to absorb a financial setback should even think about investing in it.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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