The Good, the Bad, and the Ugly: Unraveling Bitcoin’s Misconceptions

Inspired by insights from a recent interview with Michael Saylor, this blog post explores the complex perceptions surrounding Bitcoin, among both economists and sophisticated investors. In traditional economics, money is often judged by its performance across three roles: as a medium of exchange, a store of value, and a unit of account. Yet, these roles alone don’t define the effectiveness of money. For instance, the U.S. dollar excels as a medium of exchange and as a unit of account, but it fares poorly as a store of value, reducing it to merely a currency. Gold, celebrated for its enduring value, struggles with portability, making it an inefficient medium of exchange. Real estate is a strong store of value yet lacks liquidity, complicating its role as a medium of exchange and a unit of account.

The Ugly

These conventional metrics, however, can lead to misunderstandings when applied to Bitcoin, particularly when it’s called a ‘cryptocurrency.’ This label pitches it against established currencies like the dollar, steering the conversation into a political arena. We can call this “the ugly” aspect of Bitcoin’s perception—it’s not just a currency, and reducing it to such ignites unnecessary debate. The term ‘cryptocurrency’ conjures images of a tool for daily transactions, which may mislead individuals into evaluating Bitcoin through a narrow lens. This perspective is problematic because it can trigger regulatory scrutiny where Bitcoin is seen as a threat to monetary sovereignty, diverting attention from its more transformative aspects as a decentralized asset that offers financial empowerment beyond the traditional banking system.

The Bad

When Bitcoin is compared to gold, we move a step closer to understanding, but even then, it’s not enough. Most top investors shy away from gold, not least because it has an approximate 2% annual inflation rate, which effectively halves its value over three decades. Labeling Bitcoin as merely a digital gold is what we refer to as “the bad.” It’s a better comparison than seeing Bitcoin as a currency but still falls short of capturing its essence and potential.

The Good

Then there’s “the good” – property. Imagine a building in cyberspace, represented as 276 blocks wide, 276 blocks high, and 276 blocks deep, symbolizing the 21 million Bitcoin that will ever be available. Like owning a piece of prime real estate, investing in Bitcoin is about acquiring a stake in the digital future. Its digital scarcity mirrors that of physical land in prime locations, which has been a historically proven store of value. The best investors are keen to own assets that not only preserve value but also provide significant growth potential. Bitcoin represents this kind of property—an asset that these professionals would want to hold in their portfolios.

Conclusion

In conclusion, despite these analogies, Bitcoin truly stands alone. Its unique nature means that it defies comparison with any traditional asset or currency. Nothing like it has ever been seen in history. While defining Bitcoin as property helps highlight its potential, it’s crucial to recognize that Bitcoin can also embody the roles of gold and currency. The beauty of Bitcoin lies in its versatility; it can be all of these things and more. The only way we can truly define Bitcoin is by educating ourselves about this groundbreaking technology and its potential to transform the financial landscape.