What attributes does Bitcoin has compared to other asset classes?
We all know or heard a little bit of information about Bitcoin and chit chatted about it at least with a few people. But why exactly it’s invented? Why do we need it? What problems does it solve for an average person? What are the points that makes quite different than money, stocks, gold or other commodities?
Without a surprise, many economists, political leaders, influencers and even average people tried to categorize Bitcoin money, stocks or commodity so far. What is it really? What are the similarities and differences among Bitcoin and other traditional asset classes?
Do you think that we can apply the duck test to Bitcoin? As the notorious aphorism by James Whitcomb Riley, a poet, states “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”
Let’s try to start with what we know about asset classes. There are a few attributes to consider while comparing these assets classes;
1. Attributes of Money
There are world-wide attributes that are assigned to money by many economists. According to economists, money should have the following properties:
Store of Value, Units of Account, Medium of Exchange, Durability, Portability, Divisibility, Uniformity, Limited Supply, Acceptability and Assets Rights (Sell, loan etc.)
2. Attributes of Gold
Gold’s subtle and explicit attributes can be listed as follows;
Conducting Heat and Electricity Transfer, Reflects Heat and Light, Ductile, Malleable, Jewelry Status and Assets Rights (Sell, loan etc.)
3. Attributes of Stocks
As you might have heard of, stocks are used to show a share an investor has within a company. Please note that, even though stocks were traded physically at first, nowadays stock papers don’t need to be physically printed papers. Like money and gold, stocks also has its own features that can be found in any type of stocks that are traded in exchanges.
Dividend Rights, Assets Rights (Sell, loan etc.), Voting Rights and Pre-emptive Rights
4. Attributes of Bitcoin
Store of Value
As a long-term investment, Bitcoin proved itself to be an excellent hedge against inflation.
Units of Account
You can use Bitcoin by dividing it to 8th decimals, 1 Satoshi’s. You can entitle your Bitcoins by owning the private keys of your Bitcoin wallet.
Medium of Exchange
Although we don’t use Bitcoin as a payment tools in our daily lives, it’s adoption has been increasing day by day. There’re lots of trials all around the world. Also, off-chain solutions such as Lightning Network and SegWit seems to provide solutions to scalability issue. When these Layer 2 solutions gets saturated, we’ll see myriad of merchants who accepts Bitcoin as a medium of exchange.
Durability
Since its creation, Bitcoin Network has been attacked many times but stood against the test of time. Although there have been many hacks related with Bitcoin, none of them were successful against Bitcoin network itself. Most of the time hackers managed to hack the client’s PC or the CEX platform to reach their goal but not the Bitcoin Network.
Portability
You can transfer your Bitcoins easily within just a few minutes. To be exact, Bitcoin Network operates with the speed of 7 transaction per second (TPS).
Divisibility
You can divide your Bitcoins to even 8th decimals. If there will be any need, in the future decimals of Bitcoin can be changed by a voting among Bitcoin holders. Some people conflate the hash power with vote power. Please be warned, they’re not the same. Anyone who owns Bitcoin can join the votings of the Bitcoin Network. In other words, voting is not exclusive to Bitcoin miners.
Uniformity
Every single Bitcoin is fungible, meaning that it’s the same as the other Bitcoins.
Limited Supply
Maximum supply of Bitcoin is 21.000.000. Please note that this maximum supply limit can be changed via a consensus of the community but it’s much likely to happen since it’s quite against the very philosophy of Bitcoin. But with a hard fork, it’s possible to change it.
Acceptability
Since its launch, Bitcoin has been used by many people and merchants. But it’s obvious that we don’t seem to be able to use it in our daily lives. But as mentioned before after a few technical improvements such as Lightning Network and SegWit, it could be wide spread. But it’s a long process, let’s hope for the best prepare for the worst.
Assets Rights (Sell, loan etc.)
If you own Bitcoin, you can use it for a transaction, you can trade it in a CEX or DEX, you can loan or borrow it, you can transfer and HODL it in a cold wallet. In other words, if you have the Bitcoin in your wallet you are the boss. If you have Bitcoin in an CEX account, CEX is the boss but promises to act according to only your commands. But it’s good to remember the notorious saying: “Not your Keys, Not your coins!”. CEXes makes money by minimizing the blockchain network involvement and commissions for buy-sell trades or transfers. To make money, they own your assets which means they’re providing a custody service to you. If they are fraudulent actors, you may lose of your life savings over a night.
Dividend Rights
There is no dividend rights in Bitcoin but we can say that if you become a miner yourself, you can gain earnings through Bitcoin rewards if you solve the puzzle before anyone else and commission fees for transactions. We can associate commission fees with dividends but they’re quite different to be frank.
Voting Rights
If you have any Bitcoin, you can stand up for voting in Bitcoin Network. As aforementioned, you don’t need to be a miner to join votings.
In brief, we can say that Bitcoin is one of the greatest, effective and efficient inventions throughout the history. It provides a promising future not only in terms of its financial attributes but also in terms of its philosophy which consist of open-source, decentralisation, freedom of choice, voting and security. As analyzed above, it has almost all of the beneficial features of other asset classes such as money, stocks and commodities. Hence, its future is even brighter than Rihanna’s diamonds, lol.
