Is Bitcoin Sound Money?

Since Bitcoin’s meteoric rise in value in 2018, many investors have wondered about whether Bitcoin is a worthwhile investment. Bitcoin enthusiasts argue that it is an excellent investment. To these enthusiasts, Bitcoin is a good investment because it is a form of sound money.

Others remain skeptical. Can a digital currency qualify as sound money? And, if so, how does it compare to traditional sound money like gold and silver?

What Is Sound Money?

Sound money is a form of currency imbued with stability against sudden changes in value. Traditionally, it refers to physical goods, usually precious metals like gold and silver. These goods maintain their worth due to an inherent value; they have a high demand and low supply.

Sound money is usually distinct from unbacked fiat currencies issued by centralized governments. Current fiat currencies include the US dollar and the EU euro.

Currencies must meet several criteria to qualify as sound money. These criteria include:

• durability (able to withstand physical weathering)
• divisibility (can be broken into smaller units)
• portability (easy to transport and transact)
• uniformity (consistent value across units)
• limited supply (restricted and finite availability)
• accessibility (broadly recognized and used)
• value stability (preserves purchasing power over time)

Given these criteria, Bitcoin does qualify as sound money. However, due to its digital nature, Bitcoin has certain challenges and difficulties that traditional currencies do not.

Pros of Bitcoin

Bitcoin has many advantages for sound money investors. Here’s a brief list of many of its advantages:

• digital durability — Bitcoin cannot decay or degrade over time, and it is secured by several decentralized nodes
• incredible transmission — Bitcoin users can transfer their Bitcoin funds across the world in minutes
• verifiability — the blockchain guarantees that your Bitcoin is valid and verifiable
• limited supply — Bitcoin will cap at 21 million units, over 90% of which have already been produced

Due to its fashionable status in many investment networks, Bitcoin has become more acceptable to many companies. Several prominent corporations will accept Bitcoin as payment for at least some of their services.

Cons of Bitcoin

However, Bitcoin has some downsides that traditional sound money options lack. One notable downside is that Bitcoin users require internet to access their funds. Gold investors have a physical, tangible good they can access any time they need.

There is an additional complication with Bitcoin. Like precious metals, Bitcoin aspires to be both a currency and an investment opportunity.

However, while many companies are growing to accept Bitcoin, it is still far from being in regular usage. Many people still struggle to understand what cryptocurrencies are and how they work. Everybody knows what gold is.

Perhaps the biggest issue with Bitcoin is cost. Even though the price of Bitcoin is falling, the current price is still tens of thousands of dollars. In contrast, gold tends to average around four thousand dollars in value; silver is often under $100.

Why Invest in Precious Metals?

Precious metals still have some advantages over Bitcoin and other cryptocurrencies. A huge part of gold’s appeal is its low volatility. While fiat currencies can drastically appreciate or depreciate, gold’s value generally remains stable. Its value may fluctuate, but by much smaller degrees.

Another advantage of precious metals is their longevity. Gold and silver have been normative modes of currency for millennia. Until 1971, all US paper currency was backed by gold.

In contrast, Bitcoin has only been in existence since 2009. Its place in the current market continues to be the subject of debate, and its future remains uncertain.

Finally, there is the tangibility factor. Bitcoin is an intangible asset stored in a digital wallet, such as Coinbase. It is a secure investment, but it is entirely digital. Investors must be comfortable navigating digital systems and cybersecurity practices.

Precious metals can bypass that challenge. Their tangibility allows people to hold these assets in their hands and secure them as they see fit. However, large precious metals investments may require expensive storage units.

What Should You Invest In?

Sound money investments are often wise choices for investors. Ultimately, deciding between cryptocurrencies and precious metals depends on the goals of the investor. However, precious metals offer many tangible, secure choices that suit many investor goals.

Making an investment requires due diligence. Look into the values of your potential investments and decide what's best for your budget. From there, you can decide which sound money investment will most benefit you!