For most of bitcoin’s lifespan, it has been used for mainly one purpose: investment. People put their money into the digital asset with hopes that they would receive an exponential amount of returns—and there is a clear reason for it. Bitcoin has seen its fair share of price swings and there have been many stories of people earning a lot of money when the price of bitcoin skyrockets. However, bitcoin has evolved a lot over time.
Peer-to-peer finance is taking a new course and it has led to a flurry of new possibilities for bitcoin users. These possibilities include making payments, sending remittances, and wealth preservation. As a matter of fact, there are several businesses accepting bitcoin already.
Bitcoin as a means of wealth preservation
The idea of using bitcoin as a means of wealth preservation can be done so in two ways: preserving your assets and preventing inflation on your currency.
A viable money reserve (preserving your assets)
For those who are using bitcoin as a means of investment, rest assured to know that bitcoin is also a viable method for the preservation of wealth. In many ways, bitcoin can be seen as the safest way to preserve your capital, for its limited supply and the technology of blockchain make it safe and secure for all its users.
One of the biggest perks of using bitcoin is that it has no geographical borders, allowing you to send and receive bitcoin from anywhere in the world, anytime. This means that traditional financial borders and barriers such as banks and other financial institutions will no longer be applicable—allowing you to have complete control over your money (assuming that you are in possession of your private keys).
Having a money reserve with bitcoin is something that a lot of people are starting to do in order to protect their assets as well as to have a backup plan in case of a financial disaster such as extreme inflation or oppression. This brings us to the next discussion of the second usage of bitcoin as a means of wealth preservation:
Protecting the value of your money (preventing inflation)
Imagine this: your country is experiencing an extreme economic crisis and the value of your currency is dropping rapidly. What’s your way out? To our comfort, a Venezuelan bitcoin holder learned that bitcoin has the power to save him and his family. Carlos Hernandez, a Ciudad Guayana native, now holds all his money in bitcoin and only withdraws small amounts when necessary. As a country’s economy can be volatile and he could lose a lot of money when bolivars’ value goes down, Carlos thinks that keeping his money all in bolivars is “financial suicide.” This explains why he decided to convert all his assets into bitcoin wealth.
Bitcoin and cryptocurrency are usually seen as something “first world,” but it’s actually the developing countries (or countries with struggling economies like Venezuela ) that have shown more openness in adopting them. However, rather than using these digital assets as a means of investment—how a lot of bitcoin holders in developed countries use bitcoin—people in developing countries are using them as a means of survival.
A big portion of the world still remains unbanked (as of 2017), which basically means that they have the same financial rights as terrorists. They’re completely cut off from traditional financial services as they aren’t allowed to trade or don’t have access to any banking services they need. This makes payments much harder for people who need them the most. On the other hand, bitcoin gives these people the financial passport and accessibility they really need, allowing them to gain access to affordable banking and the global free trade system.
As one of its real-use cases, bitcoin can be used as a means of wealth preservation for countries with struggling economies. Take Venezuela again as an example, their fiat currency is currently experiencing an inflation rate of 10 million percent (as of August 2019). People are looking for a means of survival—and bitcoin comes in handy as their solution. Venezuelans have recently hit a bitcoin trading record of 120 billion bolivars as it’s a very secure way for them to protect their fiat currency from experiencing any further hyperinflation.
Gold vs. Bitcoin
Gold and bitcoin are both extremely useful assets when it comes to the preservation of wealth. Gold is a precious metal and has long been a physical asset entailing unique properties such as rarity, durability, and beauty. On the other hand, bitcoin is a relatively newly introduced digital asset with real-use cases that are yet to be discovered. Each of them has their own set of wealth preservation strategies.
In terms of security, gold and bitcoin are different in many ways. Gold is tangible and physical, allowing people to store it in whatever way they want. Bitcoin, however, is digital and if you lose access to your private keys, all can be lost within a matter of minutes—whether it be to hackers or just lost in general. On the other hand, gold can also be physically stolen, can erode, and the general quality of the gold can be tarnished.
Both assets have a limited supply, but gold has gone through thousands of years of competition with other forms of payment and secured its spot as the clear winner when it comes to the store of value. Because gold has been around for so long, people are more likely to believe in its value. Bitcoin, on the other hand, despite having a limited supply as well, is believed to be potentially forked for more supply. Moreover, the price of bitcoin is volatile at times and the prevention of money laundering/terrorist acts can hinder bitcoin from getting official support.
Nevertheless, with economic crises happening all over the world, bitcoin is just beginning to prove its real-life uses and it’s showing everyone that although it’s not as respected as gold yet, it can be a viable means of wealth preservation.
As you can see, the features of bitcoin evidently emancipate the unbanked from central control. Bitcoin, as a decentralised currency, provides people a means of traversing through the financial world without barriers.
In addition, bitcoin has the unique trait of being unable to be confiscated. This means that your bitcoin cannot be seized by any jurisdiction (as long as you own the private key). Ask yourself this: which of the assets you own is non-confiscatable by a higher authority? The answer is that aside from bitcoin (and other cryptocurrencies), most assets are vulnerable to confiscation. This makes bitcoin an ideal way to preserve your wealth, as well as to produce wealth. It’s an asset that yo*au don’t have to report.
Peer-to-peer finance is transforming the way bitcoin can be used. With more and more real-use cases it’s exciting to see bitcoin’s capability to better societies and communities around the world—and it’s only just the beginning.