Many people who accrue bitcoin don’t necessary “do” anything with it other than hold (or “HODL”) it as a long-term investment or savings. The bitcoin price relative to fiat currency has been very volatile, but has been trending up over the years. Some users also describe bitcoin as a digital store of value, likening it to a digital version of gold.
For more information about the inherent value built into bitcoin, visit our guide “What Gives Bitcoin Value?”
Bitcoin is one of the most unique technologies to emerge since the advent of the internet. Some believe it’s the most important invention since agriculture, while others think it’s the most overhyped financial asset since tulip bulbs. But there are some distinct advantages that Bitcoin has as an asset compared to others in the traditional economic system.
Bitcoin is inflation resistant. By design, there will only ever be 21 million bitcoin. Where the value of fiat currencies is inflated and manipulated by central banks and commercial banks, Bitcoin’s emission schedule is predictable and limited. This is also why some people consider it a good store of value: a “digital gold.”
Bitcoin is also highly censorship resistant and difficult to confiscate. While authorities can strip individuals of their bank accounts, seize their traditional assets or flag their credit cards, it is much more difficult to stop an individual from using bitcoin when and where they want.
This also means that, compared to fiat currencies, bitcoin is much easier to transfer across borders. While it can be difficult, slow and expensive to send dollars, euros or yen across countries, bitcoin can seamlessly be transferred and sent around the world, regardless of an individual’s location.
Transactions are connected to a user’s Bitcoin address, which is stored on its general ledger, called the blockchain. If that address is linked to a real identity, transactions can be traced back to the user; if it isn’t, they can’t. This relative anonymity makes the platform appealing for things like incognito purchases over the internet.
A key component of Bitcoin’s blockchain is the fact that it is an open, distributed ledger. Through the distributed nature of this ledger, the transactions on the blockchain are verified by the consensus of every member, offering security and trust without a third-party overseer.
Bitcoin can also be difficult to utilize as an investment or savings asset because of its relative novelty in our financial system. Financial regulations surrounding bitcoin and other digital currencies are constantly evolving and it can be difficult to source sound advice around how to manage it, integrate it into your financial portfolio and pay taxes on it.
To read more about the financial regulations surrounding the original cryptocurrency, visit our bitcoin and taxes guide.