In this article, you will learn what is a store of value. Earning money is one thing – knowing how to save it is completely different. No matter how big your paycheck, if you're not saving it in the right way some of its value will be robbed by inflation. That is why you need a reliable store of value that lets your earnings retain their worth.
What is a Store of Value?
The term “store of value” is almost self-explanatory, but the fact is, what it refers to has changed drastically over time. Presently its definition can only be specified once you understand the terms “value” and “inflation”, and how they apply to your earnings.
So, what do these two terms mean? Well, the value of cash refers to the purchasing power (how much you can buy with it) it has at a given point in time, while inflation is the gradual decrease in the purchasing power of cash Due, to the increasing supply of the cash. Simply put, there is no limit to the number of banknotes or coins a country can issue; and by the simple principle of economics, when the supply of something increases, its value decreases.
That brings us to the term “store of value”. To store value, an asset must have a growth rate that's higher or equal to the inflation rate (the amount of new money is being produced). It must also be easily transferred through time (doesn't deteriorate), otherwise it won't really store the value.
Cryptocurrency as a Store of Value
There are a number of reasons why cryptocurrency is considered an effective store of value.
-It's a long-term hedge against inflation
Limited supply
Bitcoin laid the foundation for cryptocurrencies. Although it started off as a new way for people to make payments, it has today become one of the most reliable stores of value. The reason for that is Bitcoin's total supply is coded into its architecture and only 21 million coins can ever come into circulation. This known and provable scarcity of Bitcoin places it well above other stores of value in existence. This is probably why its current market capitalization has beat that of most major companies.
Ethereum v inflation
Ethereum's native currency Ether (ETH) too has shown commendable growth, despite the fact that it does not have a fixed supply. Its growing footprint across the DeFi landscape and its increasing use cases on Web3 reflect its enormous potential for expansion to a wide population. This intrinsic value, along with the famous deflationary EIP1559. sets the table for ETH to potentially become a great store of value.
-Easy divisibility
A dollar can be divided into 100 cents – but did you know one Bitcoin can be divided into 100 million Satoshis? Similarly, one Ether can be divided into one billion Gwei, and each Gwei is further divisible into one billion Wei.
So, as far as making small payments goes, cryptocurrencies have got your back.
-Universal jurisdiction
Fiat currencies are limited by geographic boundaries; crypto knows no borders. Coins are based on global, decentralized networks called blockchains. So, whether you want to use it in a grocery store two blocks away or transfer it to a family member who stays on the other side of the world, you can do it within minutes or even seconds. It's all the same.
This flexibility enhances crypto's profile as a store of value.
-True ownership
Cryptocurrencies are decentralized currencies that no one controls. When you own cryptocurrencies, you are the true owner of the assets and they cannot be affected by anything except the market itself. And thanks to crypto's increasing acceptance, you may co not even have to convert your back into money.
Bottom Line
But with its ingrained ability to store value, we're sure to see crypto being leveraged more and more often by people who want to safeguard their earnings. This article is about what is a store of value.
