Decentralised and censorship-resistant monetary system. Fidelity’s report analysis of Bitcoin’s uniqueness.
In January 2022, Fidelity Digital Assets outlined the unique characteristics of Bitcoin, highlighting how it differs from other digital assets. Now, more than a year and a half later, the research team has released a new report that reiterates and updates these considerations.
Fidelity’s report examines why investors should consider Bitcoin separately from other digital assets. Compared to January 2022, Bitcoin has continued to gain adoption and market share in the digital asset space. The paper explains how Bitcoin is best understood as a monetary asset: one of the main reasons that would lead to the decision to invest in Bitcoin would be to seek a store of value in an increasingly digital world.
Nature of Bitcoin and money
The report emphasises the distinction between ‘Bitcoin‘ as a network and ‘bitcoin‘ as an asset. The Bitcoin network consists of thousands of computers running the same Bitcoin software. This software acts as a protocol and provides the rules that govern the Bitcoin network. The network functions as a payment system, where users can send and receive a digital token, bitcoin.
The report discusses the qualities that make an asset ‘good money‘, such as durability, divisibility, fungibility, portability, verifiability and scarcity. Bitcoin possesses many of these qualities, combining the scarcity and durability of gold with the ease of use, storage and portability of fiat currency. One of the greatest characteristics, writes Fidelity, is its scarcity. Not only is it scarce, it is also finite. There will only be 21 million bitcoins.
Decentralisation and resistance to censorship
Two key characteristics underline bitcoin’s credibility and are necessary to understand its supply ceiling and why it is distinct from any other digital asset. The first is Bitcoin’s decentralisation. No one person, company or government owns or controls the network or the rules that govern it. The second is censorship resistance. Since no person, company or government owns or controls the network, Bitcoin is very resistant to censorship.
Network effects and dominance
Bitcoin network effects are extremely powerful. If investors are looking for a digital asset as a monetary asset, they will naturally choose the one with the largest, most secure, decentralised and liquid network. Bitcoin, being the first truly scarce digital asset ever invented, received a first-mover advantage and has maintained it over time.
Antifragility
The report concludes by pointing out that every minute, hour, day and year that Bitcoin survives increases its chances of continuing into the future as it gains more trust and survives more shocks. This goes hand in hand with the property of antifragility, where something becomes more robust or stronger with each attack or instance where the system endures some form of stress.
In summary, Fidelity’s report provides a comprehensive framework for understanding why Bitcoin should be considered separately from other digital assets and why it has unique potential as a monetary asset in a digital world.
