Bitcoin is more than just digital gold; it’s a multifaceted player in the modern financial world. It’s like the Met Gala of finance, showcasing a variety of fashion statements.
But what are these ‘fashion statements’ of Bitcoin?
Let’s explore the ten practical roles that Bitcoin plays, from being a reliable store of value to offering native yields to holders.
1. Store of Value (SoV)
Bitcoin is best known as a store of value, comparable to digital gold. A store of value is an asset that preserves its purchasing power over time and can be readily exchanged for other assets. Common examples include precious metals, real estate, and fiat currency.
For an asset to be considered a store of value, it must be durable, portable, fungible, divisible, scarce, and verifiable. Bitcoin excels in all these criteria.
Bitcoin’s unique qualities, such as its decentralized nature and finite supply of 21 million BTC, make it a robust economic safeguard, particularly during downturns. Moreover, Bitcoin’s portability, divisibility, and verifiability through the public blockchain set it apart from other assets.
These attributes have fortified Bitcoin’s reputation as a secure repository of wealth and established it as a prominent store of value assets.
2. Medium of Payment
Satoshi Nakamoto originally envisioned Bitcoin as “Digital Cash,” a cryptocurrency designed to function as a complete payment currency outside the traditional financial system. As a result, Bitcoin transcends borders, enabling global transactions without the need for conventional banking systems. BTC holders can effortlessly transfer value from one wallet to another without requiring approval from any centralized authority.
While rising transaction fees may have slowed Bitcoin’s adoption as a payment medium, innovations such as the Lightning Network are boosting its use for everyday transactions, particularly in regions with limited financial infrastructure.
3. Yields
After years of development, native yields are finally coming to Bitcoin.
Over the years, developments have finally allowed Bitcoin to offer yield generation through DeFi, staking, and shared security, giving rise to a new BTCfi ecosystem. For the first time in Bitcoin’s history, holders can now earn native yields without bridging or relinquishing custody of their BTC to third parties.
Innovative platforms like Babylon Chain and Merlin Layer 2 spearhead this development, offering native yields for Bitcoin. This new capability enhances Bitcoin’s utility, positioning it as a more versatile financial asset.
As institutions accumulate Bitcoin, native yields will provide an ideal path for capital efficiency, optimizing billions of dollars in holdings.
4. The Ultimate Collateral
Bitcoin’s substantial market cap and universal acceptance make it the ultimate collateral in financial markets such as OTC derivatives and loans.
The core properties mentioned above, such as immutability, portability, and scarcity, turn Bitcoin into the perfect collateral asset.
In addition, its unparalleled liquidity and value further enable secure lending and borrowing, making it a preferred asset for collateralization. Bitcoin’s high liquidity means it can be quickly bought or sold without significantly impacting its market price, assuring lenders and borrowers that they can readily convert Bitcoin to fiat currency if needed.
5. Hedge against Inflation
With hyperinflation rampant in multiple economies, Bitcoin has emerged as a hedge against inflation. As traditional currencies lose value due to economic instability, Bitcoin provides an alternative means of preserving wealth. In regions experiencing significant currency volatility, Bitcoin is increasingly seen as a safety net, offering stability that traditional fiat currencies often cannot provide.
Its role as a store of value helps preserve purchasing power in unstable economic climates, offering a viable alternative to traditional currencies that suffer from inflationary pressures. For example, in economies like Turkey, Argentina, and Sri Lanka, where hyperinflation has severely eroded the value of local currencies, citizens are increasingly turning to cryptocurrency to safeguard their financial assets.
In Turkey, the lira’s dramatic depreciation has led many to convert their savings into Bitcoin to avoid further loss of value. Similarly, in Argentina, the peso’s chronic inflation has driven people to seek refuge in cryptocurrencies as a more reliable store of value.
As more people in these and other affected regions adopt Bitcoin, its role as a buffer against economic instability becomes more significant. Bitcoin offers a way to mitigate the risks associated with hyperinflation and empowers individuals to maintain control over their financial future in the face of economic uncertainty.
6. Foundation for Tokens and Projects
While the original Bitcoin codebase might have been quite limited, newly released Bitcoin Improvement Protocols, such as TapRoot and SegWit, have laid the foundations for projects to start building on Bitcoin in recent years.
Bitcoin’s blockchain has become a foundation for new tokens and projects, such as Ordinals, Runes, and BRC-20. These innovations drive growth and serve as a solid ecosystem for developing new token primitives, fostering a robust environment for blockchain projects.
7. Smart Layer 1 Network
Recent initiatives like OP-CAT are enabling smart contracts on the Bitcoin network.
This extends Bitcoin’s functionality beyond simple transactions to automated agreements based on predefined conditions, further diversifying its applications.
Take a look at Mikhil Pandey’s in-depth article surrounding this topic for more insight.
8. NFT Hub
The rise of Ordinals in late 2023 marked a new era for NFTs on the Bitcoin blockchain.
Collections like Bitcoin Punks and Bitcoin Frogs have invigorated the NFT landscape for Bitcoin, making it a significant player in the NFT market.
In fact, CryptoSlam estimates that the all-time sales volume for NFTs on the Bitcoin blockchain has now surpassed $4 billion.
9. Tool for Financial Inclusion
Bitcoin’s decentralized nature is crucial for enhancing financial inclusion, allowing those without robust banking systems to start taking control of their financial futures.
It provides banking services to unbanked and underbanked populations, especially in regions with scarce financial resources.
By leveling the financial playing field, Bitcoin ensures broader access to financial services.
10. Emerging Asset Class
Bitcoin’s integration into investment funds and ETFs has legitimized it as an emerging asset class.
This broader institutional adoption encourages further integration into mainstream financial products, attracting significant capital inflows and reinforcing Bitcoin’s role in the financial ecosystem.
According to data from Blockworks, ETFs such as BlackRock, Grayscale, and Fidelity have billions in Assets Under Management for their Bitcoin ETFs. Furthermore,
BitcoinTreasuries.com shows that traditional companies such as MicroStrategy and Tesla continue adding to their Bitcoin holdings, showing their increased appeal as a legitimate emerging asset class.
Conclusion
Bitcoin is more than a digital currency; it’s a multifaceted asset with diverse applications beyond transactions. Its roles in value storage, payments, yield generation, collateral, inflation hedging, token foundations, smart contracts, NFTs, financial inclusion, and as an emerging asset class highlight its long-term value.
At pSTAKE, we’re fans of each and every one of the hats that Bitcoin’s wearing today. Our favorite – by a long mile – is the Yield hat. Providing yield for BTC holders is something that we’re working on, allowing BTC Hodlers to finally have the opportunity to securely earn a return on their BTC stash.
