One of the main questions of crypto, particularly Bitcoin is whether it can become money. To answer this question we need to understand the purpose and definition of money.
Money has the following qualities:
1) A medium of exchange
2) Is accepted as legal tender for debt repayment
3) Has a measurable value
5) Can be divided into sub-units
6) Is a store of value
Medium of exchange
There is no question that Bitcoin can be used as a medium of exchange. As the value of Bitcoin rises so does its acceptance. Whilst not widely accepted by all businesses there is a vast array of goods and services that can be paid for using Bitcoin. Furthermore there are several pieces of software that enable quick and easy transfer of Bitcoin into fiat currency in order to purchase items. Examples include mobile apps and specialised debit cards.
Unlike in the case of fiat money, creditors are not required to accept Bitcoin nor any other cryptocurrency for the repayment of debt. Consequently, Bitcoin is not legal tender. As such, it can be argued that Bitcoin is not money.
Money should be cognizable and therefore easily measurable. For example, gold is traded on globally accessible markets. As such, it’s current price is easily accessible. Similarly, Bitcoin is traded on exchanges at known prices, thereby satisfying the measurable value criteria.
You’d be forgiven for thinking that since Bitcoin is intangible computer code that it could never be portable. Quite the contrary, it’s because of it is software it can be on your smartphone in a ‘hot wallet’. Alternatively, it can be accessed via the internet, via a hardware wallet or printed out as a QR code on a paper wallet.
Money should be fungible. This means that it can be sub-divided. For example, nickels, dimes and pennies make up dollars. Similarly, one Bitcoin can be sub-divided into 100 million Satoshis (named after the creator of Bitcoin Satoshi Nakamoto). Therefore, Bitcoin is fungible.
Store of value
Money should be a store of value such that individuals can store their wealth as money at least in the short term. As for whether Bitcoin can be a store of value is difficult to argue. The Bitcoin price has been extremely volatile such that a unless you were particularly bullish on the Bitcoin price you may not wish to store your wealth in Bitcoin, even in the short term.
Finally, money should be durable. This means that it can be multiple times. That dirty green dollar bill has been in the hands of many thousands of consumers. Despite this, it is still in remarkable condition. Fortunately, as Bitcoin isn’t physical it has ultimate durability in the form of digital code. Another tick in the box for Bitcoin as money.
Well, is Bitcoin money?
Bitcoin has many of the attributes of money. However it not considered legal tender. Furthermore, currently it is not a stable store of value. As such, I must conclude that Bitcoin and other cryptocurrencies cannot be considered as money. However, in terms of going out and using or investing in Bitcoin does that matter that it doesn’t meet the definition of money? Obviously not. Go out and enjoy using and spending your Bitcoin.