This may seem like a tough question to answer, but once you understand the definition of money, you can apply it to cryptocurrency such as Bitcoin and you will see how simple it actually is.
I have a previous post on a Brief History of Money that you can quickly refresh if you like.
The Definition of Money is:
- A means of exchange
- A store of value (wealth)
- A unit of account
Many people argue about whether or not Bitcoin satisfies the above definition. The real answer is that in some respect, Bitcoin does to some degree and capacity, satisfy the above definition of money.
Is Bitcoin a Medium of Exchange?
What determines if something is a means of exchange? Simple: if people use it as a medium of exchange. Cattle, salt, sea shells, beads, and eventually metal coins were all used as means of exchange. Some of them were better than others. Then we entered the gold standard, which branched to involve fiat money. Fiat money evolved to numbers on online accounts. Which evolved to cryptocurrencies. The big difference is that fiat is still the main medium of exchange, and the absolute vast majority of transactions use the $USD (or other sanctioned fiat currency) as the medium of exchange.
Bitcoin is used as a medium of exchange. First, it was used to buy pizza, then it was used primarily for illicit material on the silk road, and today many people do use Bitcoin to make international remittance, or to pay for things (yes you can use Bitcoin to buy plane tickets or pay for things online on certain sites).
Moreover, the fiat world makes inter-bank transfers 9-5 Monday to Friday. Bitcoin (and other cryptocurrencies such as XRP and Ethereum) are 24/7/365. Just as libraries were open during daytime hours Monday to Friday, same as most News Channels (at least for live news), then the Internet came around, open, live 24/7/365. Can you see the parallel?
You will be able to exchange and transact anytime, anywhere, near instantly. Regardless of what the haters may claim about the scalability and transaction speeds, there are improvements coming to Bitcoin (Bitcoin Lightning Network), Ethereum (Metropolis multi-phase upgrade) and XRP (already has very high transactions per second).
Bitcoin, Ethereum and XRP are all used as mediums of exchange.
Is Bitcoin a Store of Value (Wealth)?
A resounding yes.
Has Bitcoin dropped over 80% since its all-time high of ~$20k USD? Yes. This is the argument that many people will make against Bitcoin as a store of value. However, if you take a look at the real numbers you can clearly see that not only does Bitcoin hold your wealth, it greatly multiplies it.
Before I continue on to point out how Bitcoin is a real store of value, I want to make a quick comparison to the USD over the last 50 years. Back in the early 1970s at the time of the Nixon Shock, one could purchase one ounce of gold for $35 USD. Then as the US Federal Reserve kept printing money over the last 50 years, it destroyed the $USD as a way to hold value/wealth. Today that same ounce of gold, which has not changed with respect to its intrinsic value, now would cost ~$1200 USD to buy. Today, $1200 has the same worth as $35 fifty years ago. So had your grandparents saved money back then without investing it, it’s value would have depreciated thunderously.
Returning to Bitcoin as a store of value, we must look at the yearly lows for Bitcoin. Yes, Bitcoin is volatile and yes it spikes up very high and then it crashes, hard. If you buy high and sell low you will ruin yourself. If you buy low and sell high, then you’re going to be a very wealthy person. If you just buy and hold whenever prices seem to drop, you’ll also be wealthy.
Take a look at the chart below that documents the yearly lows of Bitcoin prices. Yes, the 2017 price is accurate, since early January 2017 started just below $1000 USD.
Bitcoin really only went down from 2014 to 2015. Otherwise, year over year, the price increased. This is highly reassuring that Bitcoin is a satisfactory store of value.
Is Bitcoin a Unit of Account?
In short, yes.
This is the least strong factor that Bitcoin has for being classified as money. It is used as a unit of account but in a very restricted way.
On most cryptocurrency exchanges (>500), exchange rates are denominated in $BTC, especially on crypto-only exchanges such as Binance. This is without a doubt a unit of account. As exchanges and the crypto industry grows, there are other cryptocurrencies being used as units of account as well. Ethereum was adopted second on money exchanges as a base pair and unit of account. Then XRP is also used on many exchanges as a base pair and unit of account.
Moreover, there are some crypto-backed smart contracts that allow users to purchase real stocks with crypto, and on the World Markets exchange the prices are denominated in $BTC. I’m certain that in the not too distant future we will be seeing stock prices denominated in $USD, $BTC and/or your local currency.
Additionally, the very basic idea of cryptocurrency is that it is an open, global, blockchain, which if we quickly recap, a blockchain consists of a series of ledgers that tracks transactions and value holders. What is the biggest public blockchain denoted in? Bitcoin. So Bitcoin is a unit of account in that regard as well.
Especially if we consider globally, that each country more or less has its own currency, but that it does not extend far beyond their borders (except for some large currencies such as USD, EUR, YEN), we can consider that Bitcoin is the money of the internet, arguably one of the biggest jurisdictions in existence.
Yes the $USD is the primary unit of account throughout the world; however, things are changing… in the 1800s it was the British Pound Sterling… It is hard for us to imagine a world with the $USD not as the main currency, but for the vast majority of human history, it wasn’t. Next comes Bitcoin (or XRP).
Markshire Crypto Conclusion:
Bitcoin is money. Without a doubt.
Please leave a comment below if you want to add any points or discuss!