There’s an unending argument among Cryptocurrency Enthusiasts whether Bitcoin should be used more as a store of value or just for it’s utility purposes. While both use-cases have their various advantages and disadvantages, this post outlines the downsides of using Bitcoin as a store of value.
What is a store of value?
A store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. More generally, a store of value is anything that retains purchasing power into the future.Wikipedia
Gold, silver and other metals and different other metals are great examples of store of value as their timeframes of realistic usability are basically unending.
While Bitcoin is often referred to as a wonderful investment, others see it as just an adorable means of transferring or even spending cash on the web. While there are benefits attached to using bitcoins as a store of value , it also has its downsides.
Bitcoin And Its Imperfections
Bitcoin has strongly shown its usefulness in the world market, but there exists an underlying issue when it boils down to the ability of bitcoin to maintain its values no matter how it is utilized.
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With the incessant fluctuations, measuring the currency is quite complex. Asides this fact, the Bitcoin system has a limit on the number of bitcoins to be generated. This only results to Bitcoin being deflationary.
Each unit of the Bitcoin will be valued more as time gradually moves thereby boosting its value. However, this clearly leads to hoarding and will also reward the early supporters.
And so, if these individuals venture on a spending binge, the market will once again become flexible.
Downsides of using Bitcoin as a store of value?
While Bitcoin has lots of advantages, there are some Downsides to consider before utilizing the Cryptocurrency. They include:
Fluctuations in its value
Since no central authority or government body is certifying its value, the value of bitcoin can either increase swiftly or take a downswing based on the actions of its owners.
For example; an owner once disposed of 400,000 bitcoins into the market suddenly, and it resulted in a big loss in the value of every other coin. Though Bitcoin moved past the incidence, it was a long time before the currency’s value increased again.
Though the coins are worth roughly a hundred dollars lately, it cannot be forecasted if the worth will remain the same any time soon.
Lack Of Payment Protections
There are distinct securities users are sure of when they make use of currencies generated by financial institutions. Some of these securities include the use of third parties like banks to finish up transactions.
Coming down to Bitcoin, a user is not assured of protection when he or she performs transactions. And so, there is the possibility of a person receiving your coins and not delivering whatever you initially purchased.
With fiat currencies, you will be refunded but in Bitcoin, it cannot be reversed. Jointly, if you accidentally lose your crypto wallet or loose your private keys, you cannot get them back and so your cash is considered lost.
A Potential For Encryption Errors
Basically, Bitcoin is only a software program. It has been encrypted adequately and has not revealed any visible sign of problems. However, this does in no fact mean there will not be any error in the code that will be analyzed and abused later on.
Lesser Spending Alternatives
Generally, the few traders around the globe are ready to approve bitcoins as a means of payment. While you may be lucky to discover an online shop that collects bitcoins as a type of currency for their diverse goods and services, there are just a handful of regular shops that will do this.
Some users are left with exchanging for normal fiat currencies before they spend it.
Lack Of Basic Understanding
Presently, the number of people that know about Bitcoin is way more than they were in the previous years. However, the number of people that are not just aware of it but have the basic knowledge of how it functions is really small.
This is actually an obstacle for anybody that may want to make payments through Bitcoin online or real-world.
As much as the the Bitcoin trend continues to soar, we cannot help but shed lights on both sides of the coin. Within a short period, Bitcoin has been able to attract the attention of monetary speculators, criminals, and cyber hackers too. While the idea of Bitcoin is fascinating, the need for a good computerized currency is genuine.
However, it is quite early to view Bitcoin as the answer or take it as just another theoretical boom.
Disclaimer: This post has been contributed just for educational purposes and should not be regarded as financial advice of any sort.
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