Why are Bitcoiners such vehement hodlers? Why do hodlers say that Bitcoin is set to take over as global money and see massive increases in value? To answer this, we need to look at why gold failed and how Bitcoin addresses these security flaws. We also need to understand why Bitcoin’s current properties are important to ensure that the network scales without losing its peer-to-peer, decentralized nature.
Bitcoin’s on-chain layer approximates to the gold settlement layer (transacting in physical gold, i.e. cash). Bitcoin makes it considerably cheaper, faster, and easier to send and validate transactions than gold ever could due to differences in their properties. Gold is bulky and requires expensive, specialized equipment to make sure that what you’re accepting is in line with your expectations. Bitcoin is digital and uses cryptography to transfer and verify the ownership of the scarce asset by moving electrons instead of coins, bricks, etc. This prevents the centralization that necessarily occurs in a gold standard to keep it cheaper, faster, and more convenient to use to both store value and exchange for goods and services.
Instead of storing and validating their own bulky and cumbersome gold, people started using banks to manage the difficulties of storage and exchange for them. But these difficulties even became issues for the banks, so they ended up doing things like keeping a ledger across several banks to keep track of which banks have how much gold and also offering certificates in exchange for physical gold that act as money substitutes. These are not necessarily problems on their own, but this centralization of the gold supply coupled with the difficulty in validation lead to two major problems: it makes it easier to do fractional reserve banking and it allows the state to exert pressure over fewer parties to control the entire gold supply. As a result, we have the Federal Reserve-dominated world we live in today where governments secure their power through seigniorage.
Bitcoin overcomes these problems by making sure that running a full node to do the validation of transactions is very cheap for anyone with a modest internet connection and hardware. Keeping the block size small keeps the barrier to entry to be your own validator low. Your node will always reject someone who tries to send you bitcoins that were created without the necessary proof of work that is required for adding new bitcoins to the supply. This grabs the power from the banks and governments and puts it back into the hands of individuals who have a huge incentive to ensure that they do not lose the value of their wealth by inflating the money supply.
The functionalities of Bitcoin as a store of value or medium of exchange are not mutually exclusive. As an asset monetizes, how people use it changes (for example, it can’t be considered a unit of account during the first stages of onboarding). Money, in its most basic definition, is a tool that transports present value through time and space for dealing with future uncertainty. So it needs to be something that holds, if not appreciates in, its value. And since you don’t know what the future brings, it needs to be highly liquid because you want to use it to exchange for whatever you don’t yet know that you will need.
Bitcoin is not yet money, but the people who are interested in hodling it are speculating for its future use case as money, therefore expecting it to massively appreciate in value (i.e. it will do an excellent job of storing their present value). Based on this, it makes sense to not spend your bitcoins but instead spend your rapidly depreciating fiat while saving your bitcoins (see Thiers’ law).
The second layers like Lightning are being built now to facilitate the smaller, day-to-day transactions and provide you the ability to massively scale Bitcoin without trading off the aforementioned benefits that Bitcoin enjoys over gold.
This is world-changing in a way we have never seen before.When you’re looking at Bitcoiners obsessed with hodling, consider it this way: would you scoff at a speculator who buys a highly likely productive plot of land because the road to it currently under construction is not yet finished?
