Bypassing The Riskiest Link
On the left, we have the traditional method of investment. An investor buys stock in a company that makes a product or service. The investor trusts that both the company’s executives and the company’s product offerings will generate increasing wealth over time.
As the right hand side of the diagram shows, a Bitcoin investor can bypass the riskiest link in the investment chain – a Bitcoin company’s management. Rather than being concerned about executive incompetence (like Mt. Gox and all the other Bitcoin companies that have gone bust), a Bitcoin investor can buy and hold bitcoins directly – just like he/she can buy gold. Indeed, I have been slowly buying up some Bitcoins over the last 6 months as a speculative investment – just in case we have another 2008-like financial meltdown in the future.
Even if Bitcoin doesn’t succeed as a widespread currency of exchange or unit of account, it can succeed as a store of “perceived value” – just like gold. Like gold and unlike fiat currency, Bitcoin is guaranteed to be scarce. But unlike gold, Bitcoin is easily and quickly transportable, cheap to store, and highly divisible.