This week in the “BSV as a…” series, we address BSV as a store of value—for real this time, I promise. The reason why discussing BSV as a store of value needed to wait until the other value propositions were discussed first has to do with the nature of the way in which BSV, or any blockchain for that matter, can ever become a store of value: via commoditization.
Before we can speak about commoditization, we first should summarize the different value propositions of Bitcoin and the broad categories that they fall into:
1. Intrinsic value — commodity uses
The value that comes with the need and use of a commodity for its intrinsic properties, normally physical ones. E.g., gold’s use as a useful unreactive, highly ductile, and malleable, conductive metal or diamonds industrial uses in drilling and polishing.
2. Money-like value — facilitating trade uses
The value that comes from the properties of a commodity that allow it to function as a money, facilitating trade, and exchange of goods. E.g., easily verifiable, divisible, durable, and plentiful enough to function as a medium of exchange. Additionally, it must act as a sufficient store of value over the time in which the asset is used to bridge exchanges in the economy.
Store of value is an emergent quality which comes eventually from widespread acceptance and convertibility. Also, a good store of value has a tendency to preserve its value over time, and not subject to volatility. A store of value is not something that you invest in and expect a return. It is a safe haven that you put your profits into after exiting from the speculative markets. It must have a low annualized volatility in order to act as a good hedge against inflation and would ideally track inflation.
3. Speculative value — profit/market uses
This value comes only when the commodity is prevalent enough that speculation on its supply curve not being able to meet demand creates the opportunity of profiting by hoarding and stockpiling inventory in it. It is only a profitable activity if stockpiles can be liquidated in the future into other assets of value. It plays a big part in the fair efficient market process of price discovery.
Gold and silver in antiquity
If we take the example of gold and silver, commodities which eventually obtained store of value and money-like properties, we see that the thing that both gold and silver had in common was arguably the requisite quality which led to their ‘monetization.’ That quality was that they had intrinsic commodity uses first and foremost, which made it a desired asset, and created a base demand for them. Importantly this was a universal demand as it applied at all, from the wealthy to commoners; and this demand was applicable to everyone in the ecosystem without prejudice or coercion required. Only then would that common demand, that common shared valuation of the commodity’s usefulness and desirability, make the commodity a common store of value, and therefore a good money.
You see, it is not just money-like qualities that enable something to become a useful money, but it must also have a common shared appreciation of its utility value as a commodity. This is what most who are in BTC do not understand. They believe that store of value can precede the adoption of a commodity as a utility.
Historically, nothing has become a store of value without having first been a common desirable commodity with a quality or use. For gold and silver, it was its aesthetic appeal as jewelry and as an open show of wealth since 5000-4000 BCE. This made it desirable for pretty much anyone you met, without the need for a shared belief system, or even a common language for the value proposition to be conveyed. After almost 4,000 years of decorative use, gold finally was minted into coinage around 8th and silver in 6th century BCE respectively.
Compare this to Bitcoin, which has no aesthetic appeal, as it is digital in nature, and can’t be used as an open show of wealth, as it cannot be easily displayed. In fact, the only quality that Bitcoin shares with gold and silver is that its supply is limited and controlled via math and consensus code as opposed to physics. But limited supply is just a necessary but insufficient condition alone for a store of value to emerge. And a commodity money cannot be a money without being first a commodity with a basic use case, and base demand for its consumption. Which now finally brings us to the notion of commoditization.
Turning something into a commodity
The process of commoditization is a loose term to describe the emergent process in which something becomes a commodity. If we accept that becoming a commodity money requires that an asset first must be a commodity, then Bitcoin must have some sort of commodity use case before it can even have a chance at becoming a money.
As we described this use case must be prevalent, ubiquitous, obvious, and useful. It must allow anyone to recognize the asset as commodity. As the circulation and distribution of this commodity becomes more and more widespread, so grows its ability to be used as a store of value, and thus medium of exchange and as a result, a money. The fact that store of value must exist before it is used as a medium of exchange is important, as an asset can only be effectively used as a medium of exchange if the value of the asset is stable for the time that value is temporarily stored in it.
Recall from monetary theory that the primary function of money is its use as a bridge of value through time. Because people’s needs rarely coincide to facilitate efficient trade, money was used to hold the value in between trades. For example, if you are a corn farmer, and wish to buy eggs from another farmer, the eggs may be produced at a rate of 10 eggs a day, whereas your corn won’t be available until fall when the whole crop will be harvested. But you need the eggs to eat today, else you will starve. What do to? Enter money, the temporary store of value. The invention of money as a store of temporary value which could be used to solve the problem of coincident needs and wants, was the most significant development in human civilization.
So in order to be a good money, the value should remain stable over the course of time in which it is being used to bridge exchanges. However, having a stable value is something that BTC followers cannot claim; it is clear that the BTC value proposition is solely as a speculative asset that will hopefully make its buyers rich via price appreciation.
For BTC, their plan to achieve commodity money-hood is this:
Speculative asset —> Money
The problem is that going from a speculative asset to a store of value is fundamentally flawed, and depends on changing the definition of store of value to mean, asset which appreciates consistently over time.
This finally brings us to the case of BSV, and how can BSV, being a version of Bitcoin, hope to be a store of value?
Hopefully by now, the answer is obvious. The process is the tried and true one set out by gold and silver: first be a commodity. But what is BSV’s base use case? It can’t be forged into jewelry and made into something that anyone around the world can appreciate the value of without any explanation, shared ideology or religion, or even a shared language; so how can billions of people hold it to some common value? BSV is a digital asset, so it must be a digital commodity. What is a digital commodity?
The base use of the BSV token is to pay for the creation of BSV transactions or entries, on a global shared data ledger. What are these entries on this global ledger that would be worth paying for? Anything you can imagine! The protocol doesn’t judge or discriminate. For some ideas, read up on the previous “BSV as a…” blog series for many different uses of a globally accessible tamper-proof timestamped ledger (usable cheaply by all).
The key point is that it is imperative that the ability to use and want the system’s use cases must be available to everyone on the planet, just as gold and silver is appealing to mostly everyone on the planet. If the potential user base of Bitcoin’s commodity function is only a subset of the global community, it won’t work. This is why the “use case” that BTC proponents promote which is some sort of misguided ‘self-sovereignty’ supra-legal money that is untouchable by governments, will never get universal appeal. It will be like trying to get silver to be used as the common coinage in a world which is mostly populated by werewolves. Their basic value proposition is both flawed (store of value cannot precede commodity uses), and the potential users of their commodity value is only a minority of the world’s population (those that want to hide from their governments).
For BSV, the plan to achieve commodity money-hood is this:
Commodity Value —> Money
In conclusion, the answer to “BSV as a store of value” (a money) is that it will become one, only if the commodity uses succeed first in building desired applications, businesses and services on BSV as a global data ledger, secure transport, and source of truth. This will happen once businesses and users have to acquire BSV in order to use the services and technology, much like how the ancient Egyptians collecting and smelting gold into statues turned the metal into a store of value.
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