Bitcoin as Money
What is money? Money is a means of exchange — it is portable, divisible, scarce, accepted, durable, limited in supply, and a store of value. Throughout history, money has been lots of things. Sheckles, copper, fish, silver, gold, paper, and now Bitcoin have all operated as money. So how does Bitcoin fair as money?
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Money is a medium of exchange; before the 1870s, money was not as complicated and acted as a means of transfer for services. After 1871, gold, a scarce resource found in items, was the money. Why gold? Gold has scarcity, a store of value, limited supply, a medium of exchange, and accepted. Although gold is not the most portable of resources — it can be transported. The logistical nightmare of portability gave way to the paper money used today. Paper money used to be backed by people’s gold. In conjunction with paper money, gold seems to be the premiere choice for money.
Before 1972, gold was the premiere choice for currency around the world. Due to wars, government power, and oil (and more), paper money is no longer backed by gold. So, what is money backed by? This question is what leads us to the phenomenon that is Bitcoin. Bitcoin is the genesis of cryptocurrency backed by technology — peer-to-peer money on the blockchain. Without going into detail on the technology or science of Bitcoin, let’s explore if Bitcoin meets the characteristics of money.
Durable, meaning that it cannot be destroyed. Bitcoin, once created, cannot be destroyed. Is Bitcoin portable? Is your phone portable? Of course, it is, Bitcoin is a currency that is tied to your devices because it is digital. Both gold and Bitcoin have a limited supply. There are only 21 million Bitcoins that will ever be created. Bitcoin is scarce, because it is mined, over time the block rewards for mining Bitcoin will be lower and lower. It is divisible, using Satoshi, Bitcoin can be broken down into smaller quantities. Bitcoin is accepted, it is the currency of El Salvador and the Central Republic of Africa. Bitcoin is also traded and used around the world.
Without diving into the technology of Bitcoin, it is important to note that it does fit the characteristics of money. Unlike gold or paper currency, Bitcoin is disinflationary, the creator Satoshi Nakamoto made sure of it in its implementation. Counterfeiting is impossible in Bitcoin because it requires validation and trust to be minted. There is no printing of Bitcoin, issuance takes place via an algorithm. Bitcoin is money, the question is whether it will serve as a global currency, and how long it will take.
