Bitcoin: The Only Digital Asset for Secure and Reliable Savings

By Mike Vazquez


In a world where traditional savings accounts are being hit hard by inflation, insolvent banks, and censorship, people seek alternative ways to save money.

Bitcoin is a promising option for protecting savings and wealth. This protection comes from bitcoin's unique combination of properties that no other form of money or digital asset can offer: absolute digital scarcity, immutability, and it's unconfiscatable.

The scarcity of Bitcoin is one of its most defining features, with only 21 million bitcoins set to exist. But it's not just the limited supply that makes Bitcoin appealing; it's also that no one can change this limit. Moreover, the irreversible nature of Bitcoin transactions makes it virtually impossible for anyone to confiscate Bitcoin.

These unique features allow people to store wealth in a currency that cannot be devalued or confiscated. You can't say the same for fiat currencies around the world. Most importantly, you can't say the same for the other digital assets that are trying to "reinvent" bitcoin, and here is why: 

Unlike bitcoin's Proof-of-Work (PoW), most new digital assets use Proof-Of-Stake (PoS) or a similar version.

PoS is a consensus mechanism in which digital asset owners validate transactions based on the number of coins they "stake." The larger the staked position is, the higher the odds of being assigned to validate a transaction. For this reason, PoS networks trend towards centralization, meaning control of the network concentrates in the hands of a few. PoS's centralization issue increases the risk of undesirable events like censorship. In some cases, it suffers governance attacks that change the rules of the network.

[Consensus mechanisms such as PoW & PoS are procedures by digital assets in which their network participants agree on the rules. Such as the supply of coins, rewards, and transactions that are valid and not. These mechanisms protect networks from malicious behavior.] 

In PoS networks, owning more of the network's digital tokens gives you more control. Therefore, you can buy control of PoS networks just like you can buy control of companies, so where is the innovation in PoS? Investment Strategist Lyn Alden answered best: "PoS is legacy tech, and it's what corporations and banks have run for centuries." Therefore, there is no innovation in PoS, and using such a mechanism would repeat our current legacy system.

While staking itself in Ethereum (the second largest digital asset) is primarily related to validating transactions and earning rewards, the broader governance of the Ethereum network may involve proposals and decisions that can be influenced by token holdings held in staking. Validators may have the opportunity to vote on specific proposals. Hence, PoS networks are vulnerable to changes to their rules, such as increasing the total token supply (inflation), censoring transactions, or confiscating funds. 

However, in bitcoin, the rules are extremely hard to change due to its Proof-of-Work (PoW) consensus mechanism. Unlike PoS networks, in PoW, buying more bitcoin does not give you more control over the bitcoin network, meaning everyone is on equal footing.

Proof-of-work is an innovative consensus mechanism because it is the first time in human history that producing and consuming energy is used to reach a consensus. This innovation eliminates the need for human governance to maintain a sound monetary policy.

Although Bitcoin miners spend computing energy to secure the network, this does not mean that owning more computational power gives them more control over the bitcoin network. 

Miners do not control validity, meaning mining pools (giant mining teams) cannot arbitrarily change the Bitcoin rules. They are merely service providers producing blocks (stored & encrypted info) bound by the Bitcoin rules that nodes validate. Miners who try to deviate from the Bitcoin rules, such as censor or fake transactions, will witness their capital depreciate, as honest miners collect the rewards & transaction fees instead.

 

[A node is a computer that runs the Bitcoin software, verifies the total supply of coins, and ensures all transactions follow Bitcoin's software rules.]

A Bitcoin node can cost less than $100, which helps keep Bitcoin decentralized since anyone can be a node validator. However, in PoS, becoming a validator is expensive. This high cost of entry makes it challenging to keep PoS decentralized, as fewer people can afford it. Though exchanges have taken it upon themselves to lower the cost of entry for average users, the validity power still goes to the exchanges themselves, adding to the concentration of control in PoS.

The extreme difficulty in being able to control and change Bitcoin is essential. Otherwise, Bitcoin could change for the worse.

What about other Proof-of-Work digital assets besides bitcoin? Such as Ethereum PoW, Ethereum Classic, Monero, Dogecoin, and Litecoin, to name a few.

Bitcoin is the clear winner. It is the most secure digital asset when measured by the hash rate (computing power) securing the network. Bitcoin's high level of security is a crucial advantage, as nation-states and banks will not store the world's money on an unsecured ledger.

Furthermore, the other PoW assets are less scarce than Bitcoin's 21 million supply limit. Some of these PoW assets don't have supply limits for the number of coins that can exist in the future. So, they are subject to infinite inflation like any other fiat currency. Because of this, these other digital assets lose value against bitcoin over time and become less secure due to the asset price being unable to maintain the mining business. Dogecoin suffered this fate and had to merge with Litecoin's mining to survive. Now, Litecoin is facing the same problem that Dogecoin faced and will eventually have to merge with a more secure Proof-of-Work blockchain like Bitcoin.

The mining business for these other digital assets cannot compete for the same electricity and energy that Bitcoin consumes. Ethereum probably converted from PoW to Proof-of-Stake because they knew they could not compete with bitcoin otherwise.

Before The Merge, Ethereum was the second largest PoW digital asset by market cap ($230 billion), about half of Bitcoin's market cap ($550 billion). However, unlike Bitcoin, the Ethereum network has proven to be mutable (changeable) since Vitalik Buterin (the creator) reverted its blockchain to recover funds from The DAO Hack in 2016. This blockchain rollback means the Ethereum team reversed their blockchain to a time before the hackers hacked the funds. This rollback defeats the entire purpose of blockchai. Blockchain is an irreversible set of records, which makes it tamper-resistant and unconfiscatable. So, by definition, Ethereum is no longer a blockchain but, at best, just another centralized database with admins. Whenever you want something changed on the Ethereum network, just call Vitalik and Joseph Lubin. 

Therefore, Bitcoin is a better store of value than all the PoS networks and all the other PoW networks.

In conclusion, Bitcoin is the only unchangeable digital asset. Its Proof-of-Work innovation makes bitcoin unconfiscatable, absolutely scarce, and immutable, making Bitcoin the only digital asset for secure and reliable savings.


(Image from dailysabah.com)

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