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, confiscation, and censorship, people seek alternative ways to save money.

Bitcoin is the best option because it mathematically guarantees that your savings and wealth are safe from the above. It offers what no other form of money or digital asset can offer: absolute, unconfiscatable digital scarcity.

Immutable and unconfiscatable digital scarcity

Bitcoin's most defining feature is its scarcity, with only 21 million bitcoins set to exist for 8 billion people. But it's more than just the limited supply that makes Bitcoin appealing; the irreversible nature of Bitcoin transactions makes it virtually impossible for anyone to confiscate or censor Bitcoin. Thanks to Bitcoin's innovative consensus mechanism, Proof-of-Work, the system's integrity is ensured, making it extremely hard to change these simple rules.

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: 

Proof-of-Work vs. Proof-of-Stake

Proof-of-Work: The Only Innovation in Digital Assets

What About the Other Proof-of-Work Digital Assets?

Proof-of-Work vs. Proof-of-Stake

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, the higher the odds of being assigned to validate a transaction. For this reason, PoS networks trend towards centralization and end up being controlled by a group of people who can buy into big staked positions. PoS's centralization increases the risk of undesirable events like censorship. In some cases, it can suffer governance attacks that change the rules of the network.

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 involves proposals and decisions influenced by the validators with considerable token holdings held in staking. These validators decide which upgrades (like hard forks) they want to support. Hence why PoS networks are vulnerable to changes to their rules, such as increasing the total token supply (inflation), censoring transactions, or confiscating funds. This vulnerability should be a point of caution for potential users.

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.

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: The Only Innovation in Digital Assets

Proof-of-work is an innovative consensus mechanism because it is the first time humans have used energy 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 will witness their capital depreciate, as honest miners collect the rewards & transaction fees instead.

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

A Bitcoin node can cost less than $100, which helps keep Bitcoin decentralized since anyone can afford to be a node validator. However, in PoS, becoming a validator is usually expensive. For example, you need at least 32 ETH tokens or $75,000 in Ethereum to become a validator today. 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.

It is essential to Bitcoin and its users that it be nearly impossible to change. Otherwise, Bitcoin could change for the worse.

What About the Other Proof-of-Work Digital Assets?

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 have a higher supply than Bitcoin's 21 million supply limit. Some of the 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 PoW 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 blockchain. 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.