Michael Saylor has famously compared Buying Bitcoin to buy real estate in Midtown Manhattan 100 years ago. Some of the wealthiest families in New York made their fortunes owning real estate. When there is a great demand for something limited, it increases in value.
“Buy the land, they don’t make it anymore.” – Mark Twain
Scarcity has a lot to do with the value of things, which is why some unique pieces of art are worth so much and why real estate in a densely populated area is more expensive than in a non-populated area (Servergem, 2020). Bitcoin as a property ). Sure, real estate has value because people pay rent to live in it, but value is determined primarily by the limited supply of building land. There is only “a lot” of real estate to be built in prime locations. Bitcoin’s appeal also stems from the fact that its supply is limited (Brown, R. 2014.”Welcome to Bitcoin Island ). There will never be more than 21,000,000 bitcoins .
But bitcoin, unlike real estate, does not generate any income. It’s as if Bitcoin is a digital property that doesn’t earn rent.
So wouldn’t calling bitcoin land a more accurate comparison?
In fact, as described Richard Brown Bitcoin is very similar to Earth due to the accounting structure of the network. But I want to build on that and extend this comparison because Bitcoin has a much more complexity to apply than land, where real estate is a better comparison. In theory, owning real estate is desirable because it generates income (rent) and can be used as a means of production (manufacturing). But for the most part, real estate now serves a different purpose. Given the high levels of monetary inflation in recent decades, simply holding money in a savings account is not enough to maintain the value of money and keep pace with inflation. As a result, many, including wealthy individuals, pension funds and foundations, invest a large part of their cash that can be spent in real estate, which has become one of the favorite value stores. Most people do not want real estate so they can live in it or use it for production. They want real estate so they can store value (Jimmy Song).
store of value
Bitcoin is widely accepted as a digital store of value, which only makes sense in a world where monetary expansion is constantly increasing.
While the supply of bitcoin is limited, the characteristics associated with bitcoin make it an ideal store of value. It is easy to carry, divisible, durable, replaceable, censored and not entrapped. Real estate cannot compete with Bitcoin as a store of value. Bitcoin is rare, more liquid, easier to move, and harder to confiscate. It can be sent anywhere in the world at virtually no cost at the speed of light. On the other hand, it is easy to confiscate and liquidate real estate in times of crisis. This was recently demonstrated in Ukraine. After the Russian invasion on February 24, 2022, Many Ukrainians have turned to bitcoin to protect their wealth, bring their money with them, accept remittances and donations, and meet daily needs. . On the other hand, real estate had to be left behind.
side
Aside from its use as a store of value, real estate is one of the most common forms of collateral used in the traditional banking system. It is usually used as a guarantee from the borrower to the lender to secure the repayment of the loan. Banks lend to people and organizations who own real estate. For comparison: Bitcoin ownership has become synonymous with “creditworthiness” in the Bitcoin space and the preferred collateral accepted by Bitcoin financial service providers. Using bitcoin as collateral to secure loan repayment has certain advantages for both borrowers and lenders. As a digital property, the speed of bitcoin is much higher than real estate, which is physical speed. It is easier to access, buy, store, use and maintain. You may live in a remote village, but as long as you have a foldable phone and can send and receive text messages, you can buy and keep bitcoin. It has the ability to be used anywhere in the world. You can live in Berlin but get a loan from a bank in Singapore if they accept your bitcoins as collateral.
As collateral, real estate has a property that makes traditional banks choose it over bitcoin. They are less volatile. Traditional financial service providers are not used to the high volatility of Bitcoin. Each asset has its own characteristics. With bitcoin, it is volatility, which is actually not bad at all. While bitcoin’s volatility can be disastrous for market participants who don’t expect it, it is generally beneficial for the economy. Bitcoin’s volatility is likely to lead to a more resilient market. Businesses need to be more able to save and not benefit as much, as rapidly falling prices can call up margins, as we’ve seen after most The recent collapse of 70% in Bitcoin . After that, a number of debt-laden companies went bankrupt. The bitcoin market is constantly being tested.”Innovations in the competitive market crucible . “However, this article is not intended to discuss the specific characteristics of the two assets as collateral or to make any predictions about the volatility of bitcoin, but rather to show the different use cases of bitcoin. I will present a comparison of the characteristics of both assets as collateral in a separate article.
conclusion
In short, real estate is not like Bitcoin in the literal sense, but it is the most appropriate metaphor to describe the various applications of Bitcoin and some of the opportunities it presents. Bitcoin is part of an essential step towards digitizing the world around us. It is a tool that will help society organize itself more efficiently. Just as the introduction of private equity allowed the creation of cities, bitcoin enables a new way to create wealth in the digital space (Bitcoin Magazine, 10th Anniversary Edition). It is the basis for reaching the next great stage of economic progress and the improvement of life on Earth (“Bitcoin is the gun” p. 172 ).
This is a guest post by Leon Wancom. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
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