Store of Value vs. Digital Money: Is Bitcoin Really a Money?
At the end of 2008, Bitcoin creator Satoshi Nakamoto published the BTC white paper, in which he described the digital currency as a "peer-to-peer electronic cash system".
However, the use of Bitcoin as money or currency has been a controversial topic in the cryptocurrency space.
While some call bitcoin the most perfect form of money ever created, others argue that the digital asset cannot be used for everyday payments.
To this end, we will examine what makes an asset a currency, whether Bitcoin has these characteristics, and examine the issue of BTC as electronic money.
What are the main characteristics of money?
First, let's take a look at what money is and the core characteristics of money.
Currency is any form of money that is in circulation as a medium of exchange for goods and services. Simply put, it is an asset that citizens of a country can use to settle daily payments.
The main characteristics of the currency include:
Durable: A currency must be durable enough. This way people can reuse it many times in the future without noticeable loss of quality.
Divisible: It is also important that a currency is divisible so that people can easily use it for ordinary transactions. For example, a $20 bill can easily be exchanged for two $10 bills or four $5 bills.
Portability: No matter how valuable an asset is, it can only function as money (whether physical or electronic) if the holder can easily transfer it from one place to another.
Recognizable: In order to use it as a medium of exchange, the authenticity and quality of the currency must be easily identifiable by the parties involved in the transaction. If the asset lacks this characteristic, a third party must be hired to appraise the instrument's value, which adds significantly to the cost of the transfer.
Scarcity: In order to maintain its value, the circulating supply of a currency must be limited. While central banks can still print new banknotes, the entire process of money is heavily regulated in order to prevent massive loss of currency value and hyperinflation.
Unity: To be interchangeable, units of currency must be relatively uniform in value and quality. For example, making a dollar coin out of gold and a 50 cent piece out of copper (or vice versa) breaks the dependency and consistency of future transactions.
Universal Acceptance: For an asset to function as a currency, it must be universally accepted by individuals and businesses. For example, no matter how valuable a diamond is, it cannot be used as currency because most people would not use it as a form of payment.
Stable: A currency must have a relatively stable or gradually increasing value, so all parties involved in a transaction know (without additional valuations that increase transaction costs) how much they receive or pay for a good or service
Difficult to counterfeit: In order for something to be used as currency, it must have certain qualities that make it difficult for people to counterfeit it. If it is easy to counterfeit, numerous fake assets will enter the market, reducing the value of the asset and greatly increasing transaction costs due to quality assessment by third parties.
Does Bitcoin have the characteristics of currency?
To assess whether Bitcoin can be used as money, let's first look at how the core characteristics of money are reflected in digital assets.
Persistence: Bitcoins "live" electronically on the blockchain. So it's still persistent until its network is up and running without worrying about quality degradation.
Divisible: Bitcoin is highly divisible, and the smallest unit is 0.00000001 BTC or 1 Satoshi (1 BTC is equal to 100 million Satoshi).
Portable: A user only needs a compatible device (smartphone, desktop, or tablet), a currency wallet, and an Internet connection to access and move his bitcoin holdings, making it easy to transfer BTC .
Identifiable: Bitcoin transactions are recorded on the blockchain, which allows anyone to identify and verify the authenticity of the coin.
bitcoin halvingbitcoin halving"Part of the deflationary mechanism. Since no one can increase the production of new BTC, Bitcoin has better scarcity characteristics than gold or other precious metals.
Uniformity: Every bitcoin is equal, and all units have the same quality.
Universal Acceptance: Unlike currencies, Bitcoin is not a universally accepted method of payment. However, due to its growing popularity, the digital asset is increasingly adopted as a method of payment across the globe.
Stable: Bitcoin is definitely not a stable asset, as the currency is often exposed to high volatility and extreme price swings. However, since the launch of the digital asset, volatility has gradually decreased, and institutional players can improve its stability in the long run.
It is difficult to counterfeit: Due to the characteristics of the Bitcoin blockchain, it is currently impossible to counterfeit BTC. While there is a small chance that someone will at some point find a way to counterfeit new coins, it won't be anytime soon.
Based on the above, we can conclude that Bitcoin has all the characteristics of money except stability and universal acceptability.
Interestingly, both of these have the potential to change in the future as Bitcoin adoption increases and cryptocurrencies mature as an asset class.
What benefits does Bitcoin payment bring to users?
Compared with traditional transfer methods, Bitcoin brings various benefits to users, such as.
Removal of middlemen: Bitcoin is characterized by peer-to-peer (P2P) transactions, which means that they take place directly between the sender and receiver without any middlemen, third parties or intermediaries. Therefore, BTC transfers are cheaper and faster.
No banking or cross-border fees: Bitcoin's network is maintained by miners, not by centralized companies or financial institutions, which means that users do not need to pay bank fees to use Bitcoin. Additionally, Bitcoin does not differentiate between local and cross-border transactions, allowing parties to send and receive international BTC transfers without additional fees.
Global Access: Bitcoin's blockchain is public, meaning it can be accessed and used by anyone around the world with a compatible device, an internet connection, and an encrypted wallet.
Fast transfers: The blockchain network is constantly running and can process transactions even on weekends and bank holidays. Bitcoin transaction confirmation times are about 10 minutes unless the network is congested.
Improved Privacy: While Bitcoin transactions are by no means anonymous, users have increased privacy compared to traditional financial services.
Due to the above advantages, more and more merchants integrate Bitcoin as a payment method.
Bitcoin doesn't have to be a currency
While Bitcoin has currency-like features and offers users a variety of payment-related benefits, most people do not use Bitcoin as a currency.
Instead, they view BTC as a store of value that they invest in or trade for profit.
Similar to precious metals like gold and silver, most bitcoin users prefer to hold on to them rather than use them to pay for products and services.
For this reason, Bitcoin is best described as digital gold, with features that allow cryptocurrencies to be used for payments as well.
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Stellar(XLM)andRipple(XRP)Case in point, these two digital asset networks feature lightning-fast transaction speeds (confirmation times of just a few seconds) and low transfer fees.
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However, withalong withalong withIncreased Institutional InterestAnd lower, this situation may change in the near future. In addition, the Lightning Network, a Layer 2 expansion solution for cheap and fast BTC transactions, can also improve the payment efficiency of digital assets.
AAX is a digital asset exchange powered by LSEG Technology. AAX Academy is a user education channel created by AAX, which aims to help more users learn novice tutorials and understand the basics of blockchain.
About AAX Academy
AAX is a digital asset exchange powered by LSEG Technology. AAX Academy is a user education channel created by AAX, which aims to help more users learn novice tutorials and understand the basics of blockchain.
