This piece of editorial content was written by Leon Wankum, who was one of the first students in the field of financial economics to complete a thesis on Bitcoin in 2015.
Bitcoin has a distinct value proposition. As a method for trading value, it grants you the right to directly own a portion of whatever is being traded. Transactions are processed using a system known as the Bitcoin network. The capacity to trade money, specifically bitcoin, the network’s native currency, which symbolizes the value of the underlying system, is made possible as a result of the processing of financial transactions. It functions as a payment network in addition to being an asset, and it is supported by the most reliable computer network in the world.
If you had the chance to purchase a piece of the internet, would you pass up the opportunity? In point of fact, this is what it means to own bitcoin, which is to own shares in a brand new ground-breaking protocol that will turn the internet into a space where not only information but also value may be freely traded.
It is possible to acquire a piece of ownership in the entire internet of value by using Bitcoin. With all the knowledge available on the internet, this was never a possibility. The ownership of assets and the capturing of value are integral parts of the network (Guy Swann). To appreciate Bitcoin’s full potential (Croesus BTC), new investors need to “get their heads around” this paradigm shift, which can be found in the previous sentence.
The purchase of bitcoin has been notably compared by Michael Saylor to the purchase of real estate in the downtown Manhattan area 100 years ago. Real estate is the source of income for many of New York’s most prosperous families, many of whom got their start in the city. The value of anything will increase when there is a strong demand for it but only a limited supply.
“Buy land, since they’re not going to make any more of it anymore.” — Mark Twain
Because of this, certain one-of-a-kind works of art are worth a significant amount of money, and real estate in areas with a high population density is more expensive than in areas with a lower population density (surferjim, 2020). Scarcity plays a significant role in determining the value of things. Bitcoin As Real Estate). It is true that real estate has value because people pay rent in order to occupy it, but the primary factor that determines its worth is the restricted availability of land on which buildings can be placed. Prime real estate can only accommodate “so many” new constructions at any given time. The fact that there are only 21 million Bitcoins in circulation adds to the cryptocurrency’s allure (Brown, R. 2014. “Welcome to Bitcoin Island”). There won’t ever be more than 21 million bitcoin in circulation.
Bitcoin, on the other hand, does not produce any revenue like real estate does. Bitcoin can be thought of as a digital property that does not provide rental income.
In that case, wouldn’t it be more appropriate to refer to it as “bitcoin land”?
In point of fact, due to the way that the network’s accounting is structured, bitcoin is quite comparable to land, as outlined by Richard Brown. However, I would like to build on that and expand this analogy because the use of bitcoin is significantly more complicated than that of land, which is why real estate is the most appropriate parallel. In principle, real estate ownership is desirable since it has the potential to be employed as a method of production and also provides money in the form of rent (manufacturing). However, the majority of real estate nowadays is used for something very different. It is not sufficient to merely put money in a savings account in order to maintain the value of money and stay up with inflation levels due to the high levels of monetary inflation that have been experienced in recent decades. As a consequence of this, many people, including wealthy individuals, pension funds, and organizations, often spend a considerable percentage of their available capital in real estate, which has evolved into one of the most favoured repositories of value. The majority of people do not desire real estate so that they can either live there or make money off of it. They seek property so that they can preserve their wealth (Jimmy Song).
Store Of Value
Bitcoin is widely regarded as a digital store of wealth, which is only reasonable in a world where monetary expansion is continually rising. Bitcoin is a decentralized digital currency that was created in 2009.
Bitcoin is an effective form of value storage despite the fact that its supply will eventually run out because of the characteristics it possesses. It is lightweight, easily transportable, divisible, long-lasting, fungible, resistant to censorship, and noncustodial. As a medium to hold wealth, real estate just cannot compete with bitcoin. Bitcoin is more difficult to seize, as it is more difficult to get, more liquid, and easier to move about. At the speed of light, it can be sent practically anywhere on the planet at almost no cost at all. On the other hand, real estate is simple to seize but extremely challenging to sell off when a crisis strikes. Recent events in Ukraine served to underline this point. After the Russian invasion of Ukraine on February 24, 2022, a significant number of Ukrainians turned to bitcoin as a means to preserve their riches, bring their money with them, accept transfers and gifts, and meet their day-to-day requirements. On the other side, real estate would have been an asset that could not have been brought along.
In addition to its function as an asset that may be used to store value, real estate is one of the most popular forms of collateral that is employed in the conventional banking system. It is a typical practice for a borrower to provide it to a lender in the form of collateral in order to secure the repayment of a loan. People and organizations who possess real estate can obtain loans from banks. For the sake of comparison, bitcoin ownership has become synonymous with the term “creditworthiness” in the bitcoin sector and is the preferred collateral accepted by bitcoin financial service providers. There are a number of benefits that come with using bitcoin as collateral to guarantee the repayment of a loan, and these benefits extend to both the borrowers and the lenders. Bitcoin, which is a digital kind of property, moves at a far faster rate than real estate, which is a tangible form of property. It is more convenient to acquire, store, utilize, and maintain overall. You might reside in a distant village, but as long as you have a flip phone and are able to send and receive texts, you are able to purchase bitcoin and keep it in your possession. It is possible to employ it in every location on the face of the earth. If a bank in Singapore is willing to take bitcoin as security for a loan, you might continue living in Berlin while simultaneously taking out a loan from that bank.
Real estate has a property that makes traditional banks prefer it over bitcoin when it comes to serving as collateral. They have a lower risk of instability. Traditional providers of financial services are not accustomed to the high level of volatility that bitcoin exhibits. Every item has its own unique characteristics. Bitcoin is known for its volatility, which is not to be considered in any way negative. Even while market participants who aren’t prepared for bitcoin’s volatility could suffer significant losses as a result, the cryptocurrency’s volatility is typically good for the economy. The volatile nature of Bitcoin will almost certainly lead to a market that is more resilient. Price declines might swiftly lead to a margin call, as we saw following the most recent decline of 70% in bitcoin’s value. Therefore, businesses need to be better equipped to conserve money and not leverage their assets as much. After that, a lot of businesses with significant amounts of debt failed as a result. The Bitcoin market is known for continuously putting “innovations in the crucible of a competitive market” to the test. However, the purpose of this essay is not to examine the particular qualities of the two assets as collateral or to make any predictions on the volatility of bitcoin. Rather, the purpose of this article is to demonstrate the various applications of bitcoin. In a subsequent essay, I will provide a comparison of the qualities that make either of these assets suitable as collateral.
In conclusion, bitcoin is not analogous to real estate in the traditional sense; however, using real estate as a metaphor for the many uses of bitcoin and the opportunities it affords is the most appropriate way to represent these aspects of bitcoin. The world that we live in is slowly but surely being digitized, and Bitcoin is an important part of that process. It is a tool that will assist society in organizing itself in a manner that is more effective. Bitcoin provides a new method of wealth creation in the digital domain, similar to how the establishment of private property rights made it possible for humans to settle land and build cities (Bitcoin Magazine, 10 Year Anniversary Edition). “Bitcoin is Venice,” page 172, describes it as “a basis for achieving the next big phase of economic growth and the betterment of life on earth.”
This is a post that was contributed by Leon Wankum. Opinions expressed are exclusively those of the author(s), and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.