Originally written on 3/17/2025
President Trump recently ordered the creation of a strategic Bitcoin reserve and US digital asset stockpile. The reserve will be established from the Bitcoin the federal government already holds and from future legally authorized criminal or civil asset forfeiture by federal departments and agencies.
The Federal government’s gold reserves at Ft Knox and elsewhere come to some 261 million troy ounces, and its strategic petroleum reserves held on the Gulf coast come to just short of 400 million barrels. The White House crypto-czar reports the Federal government currently owns about 200,000 bitcoins. Establishing the Bitcoin reserve and US digital asset stockpile is a validation, recognition, and an elevation of crypto-currencies to being legitimate and respectable financial assets.
But just what is a digital asset such as Bitcoin? Bitcoin was launched in 2009 as a digital currency designed for payment as a substitute for government currencies. The core challenge was preventing the digital equivalent of counterfeiting. In other words, how to prevent people from copying the digital currency. The copying problem was solved through a consensus mechanism called blockchain, which creates a publicly distributed ledger of verified transactions.
Bitcoins were (and are) created and collected by “miners” who complete complex arithmetic tasks through computers. The tasks require extensive computing power and use a lot of electricity. In 2022, 0.38% of the world’s electricity consumption was estimated to be used in mining Bitcoin.
New Bitcoins are continually being created, but the underlying software protocol limits the supply of Bitcoin to 21 million units. The difficulty of the computing tasks necessary to produce new units of Bitcoin increases over time. This protocol and limiting supply are central to making Bitcoin valuable. It is estimated that Bitcoin will continue to be mined until 2140.
Bitcoin is not tied to physical assets like gold or fiat currency and is without government mandate. It is not issued, regulated, or guaranteed by any central authority or government. Instead, it relies on a decentralized network and cryptographic algorithms to maintain trust and security.
As a medium of exchange, Bitcoin faces competition from other currencies and payment systems. Indeed, Bitcoin has not become a generally accepted medium of exchange. However, it has become a widely held but volatile asset. Although most investors and seemingly all regulators have been quite suspicious of Bitcoin, a $10k investment in Bitcoin at its 2017 peak would be worth over $45k today. Nothing affords acceptance like success.