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What Makes Bitcoin a Store of Value?

**A cup is not being useful when it sits in the cupboard, only when you drink from it. A bicycle is not useful when it sits in the garage, but when you ride it.** We can say that a bicycle or a cup are useful items, even when not currently in use, but it **is the ability to make use of them when needed that grants them this label of utility.**

Likewise, a broken cup or a bicycle damaged beyond repair ceases to be useful and becomes junk. This is because **value comes from utility** and not the other way around. A thing that loses its intended functionality loses its value. The broken cup may still find itself useful to the artist, but broken items tend to lose all worth and can generally be had for free… many people even pay someone else to collect their junk from them!¹

This article is about the “store of value” myth and how those who promote it are blind to the gaps in their logic. Gold is considered useful as a store of value because people know with certainty that when the time comes to actually use it, e.g., to sell it or trade it (or smelt it or forge it), that there will be someone else to buy it with little enough fuss. **Gold is useful as a store of value because it is universally regarded as something that has value.** Gold has value, and it can be an asset, but it is not money.

Bitcoin is different. It was invented, described, and marketed as a new form of money. Its only function was to serve the needs of its users by being a better way to transmit value from one person to another. It was (and is) revolutionary because **it marked the first time in human history people could transmit any amount of value across any distance or any border without the involvement of intermediaries and regulators. For the first time in human history, a person could send fifty cents from Tokyo to Tanzania as quickly and easily as they drop spare change in the hat of a street musician.** In other words, Bitcoin is a peer-to-peer electronic cash system.

Cash is regarded as something of high utility. It can be used at virtually any store, or traded to virtually any person you come across in day-to-day life. There are few people who would walk past a hundred dollar note on the ground without stopping to pick it up. Cash is hyper-useful because, like Bitcoin, and unlike previous attempts at electronic money, it can be given to any person, in any amount, without any oversight or permission required. Bitcoin’s pseudonymous inventor **Satoshi Nakamoto bridged the gap between cash and electronic money by creating the world’s first form of electronic money that had all the same monetary properties as cash. But it was superior to cash, because it did not have many of the negative physical properties that can work against cash. It can’t be confiscated, torn, burned, counterfeited, eaten by rats, and it does not weigh anything or occupy any space.** Carrying $100,000 in cash or gold through an airport is risky, but with Bitcoin one can memorize a mnemonic phrase and walk around with $100,000 in their brain and no one can stop them.

More revolutionary still, **Bitcoin also had many of the properties that make gold valuable while shedding the properties that make it inconvenient.** Bitcoin takes the best attributes of both cash and gold and boils them down to their purest essence.

Like the cup in the cupboard and the bicycle in the garage, cash in the wallet or under the mattress is only “useful” insofar as it can be reliably useful at the time one wishes to use it. **A trillion-dollar Zimbabwe note held by an American is regarded as a novelty, not counted as cash-on-hand. Even a strong foreign currency held in cash will be regarded as less useful than the prevailing local currency, because it won’t be as widely accepted and one often has to carry it to a bank or a money-changer to convert it to a more useful form of paper. This doesn’t happens with Bitcoin which is becoming widely accepted everywhere in the world.**

[Based on this article](https://medium.com/coinmonks/what-makes-bitcoin-a-store-of-value-599869e3ada6)



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5 Comments

  1. >A cup is not being useful when it sits in the cupboard, only when you drink from it. A bicycle is not useful when it sits in the garage, but when you ride it. We can say that a bicycle or a cup are useful items, even when not currently in use, but it is the ability to make use of them when needed that grants them this label of utility.

    what about a bar of gold? It’s sitting in Fort Knox vault under ground. (allegedly)

    >Likewise, a broken cup or a bicycle damaged beyond repair ceases to be useful and becomes junk. This is because value comes from utility and not the other way around. A thing that loses its intended functionality loses its value. The broken cup may still find itself useful to the artist, but broken items tend to lose all worth and can generally be had for free… many people even pay someone else to collect their junk from them!¹

    okay.

    >This article is about the “store of value” myth and how those who promote it are blind to the gaps in their logic. Gold is considered useful as a store of value because people know with certainty that when the time comes to actually use it, e.g., to sell it or trade it (or smelt it or forge it), that there will be someone else to buy it with little enough fuss. Gold is useful as a store of value because it is universally regarded as something that has value. Gold has value, and it can be an asset, but it is not money.

    Wrong. Gold IS a type of money. it’s a good store of value because it’s hard to get, you have to put in work to refine it, and it doesn’t corrode. That’s why it’s money.

    >Bitcoin is different. It was invented, described, and marketed as a new form of money. Its only function was to serve the needs of its users by being a better way to transmit value from one person to another. It was (and is) revolutionary because it marked the first time in human history people could transmit any amount of value across any distance or any border without the involvement of intermediaries and regulators. For the first time in human history, a person could send fifty cents from Tokyo to Tanzania as quickly and easily as they drop spare change in the hat of a street musician. In other words, Bitcoin is a peer-to-peer electronic cash system.

    Yes. It’s a better gold.

    >Cash is regarded as something of high utility. It can be used at virtually any store, or traded to virtually any person you come across in day-to-day life. There are few people who would walk past a hundred dollar note on the ground without stopping to pick it up. Cash is hyper-useful because, like Bitcoin, and unlike previous attempts at electronic money, it can be given to any person, in any amount, without any oversight or permission required. Bitcoin’s pseudonymous inventor Satoshi Nakamoto bridged the gap between cash and electronic money by creating the world’s first form of electronic money that had all the same monetary properties as cash. But it was superior to cash, because it did not have many of the negative physical properties that can work against cash. It can’t be confiscated, torn, burned, counterfeited, eaten by rats, and it does not weigh anything or occupy any space. Carrying $100,000 in cash or gold through an airport is risky, but with Bitcoin one can memorize a mnemonic phrase and walk around with $100,000 in their brain and no one can stop them.

    okay. Yea. we know. That’s why it has value.

    >More revolutionary still, Bitcoin also had many of the properties that make gold valuable while shedding the properties that make it inconvenient. Bitcoin takes the best attributes of both cash and gold and boils them down to their purest essence.

    basically.

    >Like the cup in the cupboard and the bicycle in the garage, cash in the wallet or under the mattress is only “useful” insofar as it can be reliably useful at the time one wishes to use it. A trillion-dollar Zimbabwe note held by an American is regarded as a novelty, not counted as cash-on-hand. Even a strong foreign currency held in cash will be regarded as less useful than the prevailing local currency, because it won’t be as widely accepted and one often has to carry it to a bank or a money-changer to convert it to a more useful form of paper. This doesn’t happens with Bitcoin which is becoming widely accepted everywhere in the world.

    okay.

  2. I didn’t quite get your objective while reading the text. I got confused from the start, because having money stopped in my wallet is deemed useful for me, otherwise I wouldn’t have it. So the same way, a cup sitting is a cupboard is obviously useful from the perspective of the owner, otherwise he wouldn’t have it there.

    I get that you ended up saying that they are useful because “they might be used/consumed in the future”, but I think the whole phrasing is a little confusing.

    After that, you went into “value comes from utility”, which I find as a crucial outright wrong statement, but I guess this depends on what you understand as “value”. For example, a broken cup can still be valued by a person who received such cup from a loved one, even it can no longer be used/consumed as a “cup”. So no, value doesn’t come from utility, value is subjective.

    Having been confused from the first sentences in overall makes it hard to follow the text. In any case, I recommend the regression theorem from von Mises and his overall value definition. It explains the purchasing power of different currencies, and how goods get to become money.

    In short, it separates the demand for a good as a “sum” of two kinds of demand: one for consumption usage, and another for facilitating trade (facilitating planning/preparing for the future, etc).

    Every good is a candidate to become money, and there is a constant competition that results in a sort of distributed agreement of what is money on a given place. Also, driven by speculators, the monetary side (not the consumption side) of the demand of a good is constantly reevaluated by speculation alone, which is basically where the entire purchasing power of Bitcoin resides.

    Of course the “properties” or “context” of a good interferes on which will likely win such competition. At a given period and place, a speculator perhaps tried to keep betting that sand was something specifically useful for facilitating trade, but that guy probably kept having losses until he had to give up on it. Throughout this process, goods rise and fall from the money status.

What do you think?

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