Store of Value
As Kingston, the Limestone City, looks to build a stronger, more resilient community, understanding the attributes of a good store of value is essential. These attributes not only influence economic stability, and allocation of capital, but also foster a community where education, strong families, morals, and prosperity thrive. The following characteristics outline what makes an ideal 'Store of Value'.
Durability: The good must not be perishable or easily destroyed.
Gold is the undisputed king of durability. Bitcoins, having no issuing authority, may be considered durable as long as the network that secures them remains in place. Given that Bitcoin is still in its infancy, it is too early to draw strong conclusions about its durability. However, if the Bitcoin network remains decentralized and secure, Bitcoin will maintain its durability indefinitely.
Portability: The good must be easy to transport and store, making it possible to secure it against loss or theft and allowing it to facilitate long-distance trade.
Bitcoins are the most portable store of value ever used by man. Private keys representing hundreds of millions of dollars can be stored on a tiny USB drive and easily carried anywhere. Furthermore, equally valuable sums can be transmitted between people on opposite ends of the earth almost instantly. Fiat currencies, being fundamentally digital, are also highly portable. However, government regulations and capital controls mean that large transfers of value usually take days or may not be possible at all. Cash can be used to avoid capital controls, but then the risk of storage and cost of transportation become significant. Gold, being physical in form and incredibly dense, is by far the least portable.
Fungibility: One specimen of the good should be interchangeable with another of equal quantity. Without fungibility, the coincidence of wants problem remains unsolved.
Gold provides the standard for fungibility. When melted down, an ounce of gold is essentially indistinguishable from any other ounce, and gold has always traded this way on the market. Bitcoins are fungible at the network level, meaning that every bitcoin, when transmitted, is treated the same on the Bitcoin network.
Verifiability: The good must be easy to quickly identify and verify as authentic. Easy verification increases the confidence of its recipient in trade and increases the likelihood a trade will be consummated.
For most intents and purposes, both fiat currencies and gold are fairly easy to verify for authenticity. However, despite providing features on their banknotes to prevent counterfeiting, nation-states and their citizens still face the potential to be duped by counterfeit bills. Gold is also not immune from being counterfeited. Sophisticated criminals, and governments, have used gold-plated metals as a way of fooling gold users into paying for false gold. Bitcoins, on the other hand, can be verified with mathematical certainty. Using cryptographic signatures, the owner of a bitcoin can publicly prove they own the bitcoins they say they do.
Divisibility: The good must be easy to subdivide. While this attribute was less important in early societies where trade was infrequent, it became more important as trade flourished and the quantities exchanged became smaller and more precise.
Bitcoins can be divided down to a hundred millionth of a bitcoin and transmitted in such infinitesimal amounts. Fiat currencies are typically divisible down to pocket change, which has little purchasing power, making fiat divisible enough in practice. Gold, while physically divisible, becomes difficult to use when divided into small enough quantities that it could be useful for lower-value day-to-day trade.
Scarcity: A monetary good must have “unforgeable costliness.” In other words, the good must not be abundant or easy to either obtain or produce in quantity. Scarcity is perhaps the most important attribute of a store of value as it taps into the innate human desire to collect that which is rare. It is the source of the original value of the store of value.
The attribute that most clearly distinguishes Bitcoin from fiat currencies and gold is its predetermined scarcity. By design, at most 21 million bitcoins can ever be created. This gives the owner of bitcoins a known percentage of the total possible supply. For instance, an owner of 10 bitcoins would know that at most 2.1 million people on earth (less than 0.03% of the world’s population) could ever have as many bitcoins as they have. Gold, while remaining quite scarce through history, is not immune to increases in supply. The Canadian dollar may, and likely MUST, be printed indefinitely.
Established History: The longer the good is perceived to have been valuable by society, the greater its appeal as a store of value.
Bitcoin, despite its short existence, has weathered enough trials in the market that there is a high likelihood it will not vanish as a valued asset any time soon. Furthermore, the Lindy effect suggests that the longer Bitcoin remains in existence, the greater society’s confidence that it will continue to exist long into the future. Gold has the longest history, however lost dominance to fiat during an age of technological growth and centralizing principals.
Censorship-Resistance: A new attribute, which has become increasingly important in our modern, digital society with pervasive surveillance, is censorship-resistance. That is, how difficult is it for an external party such as a corporation or state to prevent the owner of the good from keeping and using it. Goods that are censorship-resistant are ideal for those living under regimes that are trying to enforce capital controls or to outlaw various forms of peaceful trade.
As a distributed peer-to-peer network, Bitcoin is, by its very nature, designed to be censorship-resistant. This is in stark contrast to the fiat banking system, where states regulate banks and the other gatekeepers of money transmission to report and prevent outlawed uses of monetary goods.
Embracing these attributes in its economic and community planning, Kingston can ensure a prosperous future for our children. Just as the city’s limestone foundations provide strength and resilience, adopting Bitcoin which is a strong Stores of Value, can help build a robust and thriving community, securing Kingston’s place as a leader in the 21st century.
Please read Vijay Boyapati's book The Bullish Case for Bitcoin
