Breaking Satoshi

If Bitcoin is not predictably useful, it's not a store of value

February 24, 2020·Deryk Makgill

Many people in Bitcoin don’t actually know what a ‘store of value’ is or why it is important.

Since this one error is at the heart of so many errors in Bitcoin, let’s answer this as clearly as possible.

First, contrary to what you will see from BTC thought leaders, a store of value is not a primary function of money, it is a secondary function of money’s primary role as a medium of exchange. It is an emergent property that arises from the fact that a particular commodity is more salable, ie more useful in exchange at the market, than another.

Here’s Murray Rothbard for example on the question of ‘store of value.

Many textbooks say that money has several functions: a medium of exchange, unit of account, or “measure of values,” a “store of value,” etc. But it should be clear that all of these functions are simply corollaries of the one great function: the medium of exchange. Because gold is a general medium, it is most marketable, it can be stored to serve as a medium in the future as well as the present, and all prices are expressed in its terms. Because gold is a commodity medium for all exchanges, it can serve as a unit of account for present, and expected future, prices.

Here’s perhaps the greatest Austrian economist, Ludwig von Mises on the same question.

The functions of money as a transmitter of value through time & space may be directly traced back to its function as a medium of exchange.

We can see that the great Austrian economists were quite clear on this topic. In order for something to become a useful store of value, it must be useful in exchange. For more on their exact reasoning, I refer you to Rothbard’s What Has Government Done to Our Money and The Theory of Money and Credit by Mises.

Next, it is incorrect to speak of ‘store of value’ purely in terms of price. No doubt price stability is an important part of storing value, but it is not the only part, and this confusion is what has led to all sorts of ridiculous logic justifying protocol changes and high fees on the Bitcoin network. Let’s look at the actual definition and this will become more clear.

A store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved.

“Predictably useful when retrieved” is the important part here. In order for a money to be considered a store of value, it must retain the qualities that make it useful through time and space.

In the case of Bitcoin for example, it cannot be considered a store of value if in the future it becomes slower, less reliable, and more expensive (less divisible and transportable) to transact with because it is not “predictably useful when retrieved,” it has become less useful.

To give another Bitcoin example, it is not a store of value if the protocol regularly changes in such a way as to invalidate previous transactions, make certain uses no longer possible, change the nature of transacting on the network, or anything else that alters the functions of Bitcoin that existed in the past, because that would mean it was no longer “predictably useful when retrieved.”

Nor is it a store of value if the network effect regularly splits because even if the money retains its price, it is now less saleable as a medium of exchange. That would, once again, mean it is not “predictably useful when retrieved.”

If we use these guidelines, we can see there are some clear qualities that are required if we want a particular fork of Bitcoin to be a good store of value.

Don’t listen to anyone who says it’s just the price or that usefulness doesn’t matter. They don’t know what they’re saying.

Relevant Books

What Has Government Done to Our Money

The Theory of Money and Credit

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