5 Features That Make Bitcoin a Unique Asset Class
Table of Contents
Table of Contents
With hedge funds, family offices, and institutional bankers adding Bitcoin to their portfolio, the cryptocurrency has finally attracted the recognition of being a unique asset class. Although this is a well-cemented fact for those in the space since Bitcoin’s early inception, this digital token is strikingly different from traditional asset classes such as real estate, stocks, and even gold.
Here are five features that make Bitcoin unique.
Bitcoin is the first truly decentralized financial asset. While stocks, real estate and currencies are controlled (to varying degrees) by governments, Bitcoin’s network is designed to keep power decentralized. Instead, the supply and distribution are determined by the network’s algorithm.
This means there are no gatekeepers. Anyone with access to the internet can technically join the Bitcoin network and add the asset to their personal portfolio. This peer-to-peer structure is the core feature of Bitcoin and is what sets it apart from every other asset class.
As a consequence of its decentralization, Bitcoin cannot be censored or controlled by any government or corporate entity. This aspect of Bitcoin is one of its many unique aspects
There’s a long history of seizure of private property and wealth. In 1933, US President Franklin D. Roosevelt signed Executive Order 6102, “forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States.” Eminent domain rules across Europe, Canada and the United States allow the government to seize private property for public purposes under special circumstances.
However, Bitcoin’s decentralization and digital existence means access to the network cannot be restricted. This democratizes the asset class and allows individuals to store wealth with self-sovereignty. This was recently demonstrated when the German police seized a miner’s crypto stash but were unable to access it without the password.
Another critical feature of Bitcoin is the hard cap on its supply. Satoshi Nakamoto ensured that there can ever be 21 million BTC. This is, perhaps, the first instance of a digital object being limited in supply. Along with the halving every 4 years, inherent rarity is part of the reason each BTC is so valuable.
Every transaction on the Bitcoin network is stored on a block that is linked to a previous block of transactions. This blockchain technology is immutable, which means no entity can erase or alter any information on the network. Transactions on Bitcoin are verified by network nodes through cryptography and recorded in blockchain (which is essentially a public ledger).
Immutability makes the network reliable and trustworthy. It sets it apart from all other asset classes where a lack of transparency, forgery, or corruption could pose a risk to the investor.
Over the past 12 years, Bitcoin has gradually become a mainstream asset. Estimates suggest there are over 100 million active BTC users across the world. That’s roughly the same population like Japan, where the Japanese yen is the third-most commonly used currency for global trade.
The popularity and ubiquity of Bitcoin make it more valuable. The fact that Bitcoin is considered a legitimate store of value and used by so many people gives it more liquidity and acceptability than most other traditional assets.
Here’s an overview of all the ways Bitcoin differs from two mainstream asset classes:
Source: Dan Held
Bitcoin’s network effects, immutability, censorship-resistance, capped supply and decentralization are what makes it unique and sets it apart as a unique asset class.