All through the history, human civilization has used commodities for money. Shells, tulip bulbs, feathers, silver, and gold have been money, and today, paper is money in the form of Euros and Dollars. And, all of these examples have a tangible aspect to them. However, a new asset class that has no physical form, cryptocurrency is increasingly influential. This virtual asset is shaking things up making a lot of people wonder whether they can be categorized as money. Before we give you our thought, you need to first understand what money is.
So what is money?
Money is anything that can be easily traded in a predictable way for goods and services. Money is essentially made up, so we can say, money is a social construct, which means it is whatever society says it is.
For something to be a good form of money it needs to have the following things:
The medium of trade – This means that money is widely accepted as a method of payment. Need to be able to facilitate trade without the need for a barter system easily. Barter systems rely on there being a double coincidence of wants between the two people involved in the exchange.
A good store of wealth – People needs to have confidence that whatever they are using as money can be used now or used in the future that is, its value can be reclaimed at a later date. This means that people can save now and spend at a later date.
Dependable unit of account – this refers to anything that supports the value of something to be expressed in a more understandable way, and in a way that enables the value of items to be compared.
Addition to the form of money serving those three purposes well, it also typically will have other properties for example:
- Money needs to be scarce
- Needs to be divisible
- Needs to be portable
- Needs to be durable
These are the root aspects of money, and Bitcoin satisfies every criterion. It is highly divisible, apparently the most divisible currency. It is easily transferable through wallets and public-key cryptography. It is valuable. It is valuable because people are ascribing that property to it; they believe it has worth. And finally, It is the apotheosis of scarce because there will only be 21 million units ever been produced.
What are real-world use cases of the bitcoin as money?
Payment reminisces- this is where one person is working from one country sending money to another country.
People that are leaving in countries that are either going hyperinflation or under extreme capital control by the government.
Entrepreneur that can’t get merchant accounts
People who want something more efficient and more effective as a medium of exchange for gold.
Strengths of bitcoin as form of money
- One of the biggest strength of bitcoin is that you can send it anywhere around the world for a very insignificant fee. It is much better for everything we see over the human history
- Have a predictable supply over time compared with the biggest crisis that the US dollar has right now. Which is the fact that a small group of people at the central bank can manipulate the supply and the price with the interest rates.
- Over the past few years, bitcoin has had significant growth in its price and speculation has brought some of that and anytime you have speculative buying that outpaces utility or the actual use of the form of money you get bubbles.
Weakness of bitcoin as form of money
- Price is extremely volatile
- Limitation on the number of transactions that the bitcoin blockchain can handle. Bitcoin can only deal with 3-7 transaction per second as compared to others like MasterCard which claim to do thousands of operations per second.
- Liquidity- the current trading volume of bitcoin can’t even handle a fraction of the global trade that is happening right now.
As with any new currency, bitcoin will take time to grow, and all this weakness will get better over time. For Eight years now, it has remained active and secure proving that it is standing the test of time. Its strength and growth prove that bitcoin is here to stay and certainly shows that bitcoin is a form of money. Sooner or later people will adopt bitcoin or another cryptocurrency as their preferred medium of exchange.