If money is just the social construct of trust, why can’t Bitcoin be money?
The thing is, it really can.
Bitcoin has been going strong for almost 12 years now, showing no signs of going away. Conversely – the network seems to be the strongest it has ever been after passing its ATH, and even institutional investors are finally starting to accept the Bitcoin standard, as we anticipated before.
MicroStrategy, Square, Ruffer – those are only a few innovative companies and investment funds that have already allocated a significant portion of their funds to Bitcoin, but certainly not the last.
The reasons for doing so have been stated many times. The main reason for it is to counter fiat currency inflation and fight against its devaluation, and Bitcoin has everything to make that happen. However, Bitcoin is also much more than that.
Does Bitcoin have all the properties of money?
For something to be called “money”, it must be able to serve as medium of exchange, a unit of account and a a store of value. To meet these requirements, money has to meet certain criteria so that people can trust and use it.
To go through these criteria, we’ll dig a little deeper and find out what makes money real.
This way, we can also determine if Bitcoin has what it takes to be considered a viable monetary unit (not just the kind supported by government bodies).
So for money (or Bitcoin) to be a medium of exchange, a unit of account and a store of value:
- It must be acceptable. Like a dollar or a euro, you want to be able to spend it. Is Bitcoin accepted by traders?
Yes. Lots of online stores take Bitcoin for payments, and more prominent brands are also easily accessible through gift cards.
- It must be shareable. That is, you must be able to divide a monetary unit into smaller pieces, just as a euro or a dollar can be divided into 100 cents. Is Bitcoin divisible into smaller pieces?
Yes. Down to 8 decimal places, actually.
- It must be portable, so you can easily transfer it wherever you need it. Is Bitcoin portable?
Yes. Better still, no intermediaries need to be portable, but more on that later.
- It must be durable because you want to use it many times over and over without breaking it. Is Bitcoin durable enough?
You bet it is, and Bitcoin is already 11 years behind it to prove its immobility.
- It should be limited in supply. Gold has this property as it is a rare commodity, while a shortage of fiat currency is artificially created through the banking system. But is Bitcoin limited?
Yes. There will never be more than 21,000,000 bitcoins and even less in circulating supply.
If we take these points into account, Bitcoin seems to not only meet the requirements of “being money” but also improve what money is, and allow us to imagine what currency might be in the future.
The only problem is, Bitcoin does not have one important property that money needs – convenience.
Bitcoin is not fun … yet
While your one hundred dollar bill is worth the same and is acceptable everywhere regardless of history, it does not apply to Bitcoin in the same way that every stage of its history can be traced and traced back to day it was excavated. Yes, bitcoin is not as private as it seems.
It means that if you ever get bitcoin that was in the hands of criminals at any time, your wallet, for example, could be blacklisted through exchanges for that reason alone.
“Clean” bitcoin versus bitcoin that has been circulating in the Silk Road for some time is not the same, making it a non-fun asset.
However, a little soft fork could solve Bitcoin’s convenience problem. One such proposal is Dandelion – proposed privacy protocol for Bitcoin.
If implemented, it would leverage random paths during the propagation process following a transaction, when the network transmits transaction details to all its nodes.
As such, Bitcoin could become much more private-centric than it is right now, shutting down one of the last key points arguing against bitcoin being money.
Despite the lack of convenience, Bitcoin is still better
Despite convenience issues, Bitcoin has incredibly robust fundamentals and properties that are not only designed to be money but also to protect wealth and keep liberty in people’s hands even if an unwelcome authoritarian figure seeks to threaten her.
- A decentralized p2p network. The Bitcoin network does not need a bank or other middlemen to hold on to it because it is run by independent network participants. That is one of the reasons why Bitcoin has never had downtime and remains irreversible since its inception.
- Resistance to seizure. If someone even suspects you are doing something with your fiat money that others may not like or approve of – believe it or not – authorities can seize it. In such situations, the principle of “guilty until proven innocent” often starts and there is not much you can do with your frozen bank account. Bitcoin fixes it, at least if you hold it in self-custody. While Bitcoin’s seizure can still be hypothetical, for example, by force, well-hidden private keys make it more complicated.
- Resists censorship. Those who hold power to censorship will sooner or later on some level, especially in countries where governments have more power than they are supposed to. However, Bitcoin can avoid censorship even if the internet itself is censored. Bitcoin is fixing it.
- Digital, global, unauthorized. Get Bitcoin on any device, use it from any location in the world whether the government likes it or not, and don’t ask anyone whether you can do it or not. What else is there to say?
- Credible and sound financial policy. Fiat money hyperinflation is not that uncommon – just look at the causes from Venezuela, Zimbabwe, Argentina, etc. However, the debilitating nature of bitcoin supply, mining difficulty adjustments and four-year halving cycles this seems to be the recipe to tackle the fundamental issues of fiat currency that can potentially swell to infinity.
- It has high liquidity – there is never a problem buying bitcoin, or selling it for whatever asset or commodity you want to own. High liquidity also brings stability to the price of an asset, which most people tend to appreciate. In fact, recently Bitcoin has been more stable than most traditional assets.
- Acknowledgment. Bitcoiners are very vocal and there is enough content they produce to spread the word, learn and pave the way for newcomers.
Bitcoin IS money, just super young
Bitcoin is an innovation that thrives on adoption, and vice versa. While perception always makes the truth, and perception of Bitcoin becomes more positive with each day being passed rather than fiat currency, it is hard to imagine any other future for Bitcoin than a bright one.
Thus, Bitcoin could also grow up to become the best financial system for the 21st century and perhaps beyond.
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