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Bitcoin is First a Medium of Exchange and Later a Store of Value

January 29, 2019

True, if it wasn’t for Bitcoin and its rise in late 2017, most wouldn’t have known what cryptocurrency and blockchain was. It is a novel technology, yes, but most “participants” are here for the money—and is perfectly normal. Nothing’s absurd about it. To speculators, the inner workings and the superiority of the technology is secondary. It is for this reason why the debate on whether Bitcoin—despite all the milestones and widespread adoption—is an ideal medium of exchange or a store of value. The store of value narrative has been rehashed for sometimes now and it is about time to clarify.

Price Volatility

Bitcoin, regardless of speed and scalability, is the most decentralized platform exemplifying and embodying the core principles of blockchain—freedom and distribution. Add that to their widespread use—not as SoV but as a medium of exchange, our stand that Bitcoin can organically grow to new heights and that “investors” shouldn’t expect prices to shoot to new highs just weeks after an 85 percent drop continue to remain firm. At least not from previous cycles where it has been determined that it will take at least three years before there’s another upswing driven mostly by demand and not speculators.

Duo-Capabilities: Store of Value and Medium of Exchange

And the duo-nature (cash and store of value) of Bitcoin — as A Peer-to-Peer Electronic Cash System–stems from the very design. The network is technically an open source settlement system secured by a swarm of incentivized miners and Satoshi’s objective was to create an alternative, a platform where people can pay move funds without third parties. It’s easy to prop this argument.

Within the Bitcoin platform, there will be 21 million BTCs to ever circulate. Of this, 17,505,025 BTCs are in circulation and it is estimated that out of these 17.505 BTCs, four million are levitating in the digital ether and can’t be retrieved. With halving, we expect rewards to keep on decreasing and because Bitcoins cannot be created arbitrarily, volatility to naturally taper as BTC use become more widespread. Because of this increase in demand, the no-inflationary nature and low volatility spin-off will make it the digital version of Gold.

Going by projections, when the last Bitcoin will be taped out and miners are entirely drawing benefits from transactions fees, it will be expected that Moore’s law will catch up and chip manufacturers will be rolling out small but very efficient chipsets evening the field for miners ensuring that they are in business.

Probable Path

Therefore, before Bitcoin becomes a store of value, it must first become a medium of exchange. That’s why the coin is divisible into eight parts and different merchants accept the coin. This is part of the first phase that will help drive adoption first as a medium of exchange. A fluid, inflation-proof option for government-issued fiat.  Adoption will fizzle out volatility and because of low volatility, we shall have platforms as Bakkt or ETFs catalyzing and helping it transform into a store of the value network.

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