Bitcoin, is the first ‘product’ of the blockchain technology. But what is Bitcoin? Is it a collection of data showing the history of ownership? Is it a commodity? Is it a security? Is it money?
This essay, applying the fundamental qualities definition and functions of money, provides arguments, intended to be curious food for thought, that Bitcoin is money.
Money, or what is agreed to be money, forms the core of our economic activities: it is a key tool for us to conduct the transactions in order to exchange goods and services. Considering that we live in in the era of digitalisation- this key tool must also be adjusted to fit the changing global conditions.
Money has taken various forms in history: people used cattle, gold coins, paper notes: anything that is a socially accepted as money in a certain environment. Nowadays, we have changed the way we use money too: we use banknotes less and less, conducting our transactions with debit or credit cards instead, or with interbank wire transfers.
In fact, cash has even become discouraged: governments of Australia, India, Portugal and others are limiting or completely banning cash payments and some are even imposing fines. Therefore, it is clear that cash, which represents fiat national currency systems, is becoming a socially unaccepted medium of exchange- we are encouraged to use a digital form of it.
As we move towards the era of digital transactions, we need to think whether the fiat national currency system and the infrastructure to conduct the monetary transactions associated with it provide the functions of money that are necessary now and in the future. According to a report by McKinsey, entitled ‘Half of the World is unbanked’, half of the world’s population remain access to banking and do not use formal financial services. Those financial institutions that rule the current centralised financial system do not reach them.
There are over two billion adult people in Africa, South East Asia, the Middle East and Latin America that are ready to increase their economic inclusion.
The current financial system involves many intermediaries, with each of them taking money and time from a transaction, and time is money too.
‘Traditional banks have outlived their time, consumer experience, not enough transparency, inability to respond to millennial’s lifestyle with a great kind of products or services’
Artur Luhaar, Partner, Change Bank
Bitcoin does not require an intermediary: it is a peer- to- peer system, enabling transfers of Bitcoin directly between users. Moreover, the transactions take a short period of time, usually up to one hour.
Bitcoin has all the necessary qualities of money: durability, fungibility, divisibility, portability.
It is recognisable and scarce. Fiat national currencies do not have all of these attributes, which are necessary as the definition for money.
For instance, scarcity is a crucial element for almost anything to retain its value in this world- if there is too much of even a very good thing, we do not value it.
Money is a socially constructed value. Fiat national currencies are not scarce at all, they can be just ‘printed’. There are spectacular examples of hyperinflation and people that experienced those are still alive. A good example is a 150,000% per day inflation in Hungary in 1945. Seventy-two years in history is not much at all, who can claim that something similar like that cannot happen again, especially considering the current instability in the world.
Satoshi Nakamoto, who wrote the Whitepaper ‘Bitcoin: a peer to peer electronic cash system’ perhaps saw the flaws of the fiat national currency system and therefore created a financial network based on a decentralised distribution and a cryptocurrency called Bitcoin. We can treat it as transactions in ledgers, as a tool to exchange goods and services, as an instrument to transfer money globally without an intermediary: no matter which way we look at it, Bitcoin is money in its ephemeral form.
Thank you for reading,