Other attributes
A store of value is something (e.g. currencies and commodities) that reliably preserves purchasing power in an economy over time.
In theory, any asset can be considered a store of value if consistent demand exists for it and its supply is limited. However, most modern stores of value are either currencies or precious metals.
Gold, silver, and other precious metals have been used as stores of value for centuries. They are suited to this purpose for a few reasons:
- Durable: Stands the tests of weather and time
- Scarce: The supply of these metals are limited by how much can be mined
- Fungible: Their properties are consistent in their pure form (i.e. 1g of gold is basically the same as any other 1g of gold).
Fiat currencies which have stable value over time can also serve as stores of value. How well a fiat currency preserves wealth over time is measured by the change in purchasing power of a single unit of account in the given currency over time.
Scarcity (i.e. limited supply) is important for fiat currencies to maintain purchasing power. Their supply is not tied to or backed by any physical assets, so the rate of inflation is determined by the monetary policy of the government. If a currency loses trust as a store of value due to hyperinflation, it can wreck havoc on the economy of any region that uses that currency. Some examples of where this has occurred include Venezuela and Zimbabwe.
Cryptocurrencies are another asset type that can potentially become stores of value. Bitcoin, for example, possesses many of the necessary characteristics: durability, scarcity, fungibility, transferability, and divisibility. However, cryptocurrencies are not currently widely accepted by merchants around the world, which limits their utility and makes their value highly speculative and volatile. As a result, cryptocurrencies are not (yet) reliable stores of value.
