“Bitcoin is not money”. This phrase represents a common bromide marshaled against digital currencies. People see Bitcoins as worthless wisps of air, which are only good for buying items in online games, or drugs from digital markets. “They are not real,” say skeptics—but the people who make these arguments have not studied digital currencies closely, so they commit an error in reasoning.
People use cryptocurrencies to buy all manner of items. Major retailers accept them, including Overstock, Tiger Direct, Memory Dealers, and Expedia. If Bitcoins are valueless and not real, why do retailers’ take them? The evidence suggests that these monies have value, which exposes problems with the belief that they are pseudo-currencies.
“Consider the case of Argentina, which right now has extreme capital controls, price controls, and serious inflation. It also happens to be the country with the highest rate of Bitcoin adoption of any country on the planet. Everything including rents and land prices is being quoted in Bitcoin. It is being bought in order to be held, and only later used for more purchases. In other words, it is being used as money.”
The Stockholm Syndrome Acceptance of Fiat
Just because Bitcoins are digital does not imply they are fake or useless, as some would have people believe. Most fiat currency units are stored digitally in computer systems, and the majority of transactions occur across a network. Bitcoin is just the next logical step in digital payment and storage. People that desire only tangible currency do not understand the benefits of cryptography and distributed networks. The power of these tools has brought digital money, and other applications to the forefront of civilization and they are now some of the most powerful technologies existing in terms of utility and disruption.
Furthermore, the claim that objects cannot be money unless a government authorizes them is bogus. If a ruling authority does not give people permission to use an item as money, then it is not money, contend government apologists.
Besides the fact that this argument panders to interests of the ruling elite, there is nothing writ large that says people must have permission use a medium of exchange. This non-argument is a psychological problem. It has its roots in Stockholm syndrome, which means people are merely apologizing for the evils of their masters. In truth, people can use whatever they want for money, regardless if someone says no and scribbles it on a piece of parchment. People do not have to suffocate under the myth that money must materialize from within the halls of power. Bitcoin is proof to this.
The Five Properties of Money
People tend to make all these complaints about digital currencies not being money, but they also do not know how to define or accurately describe money. So what exactly is it?
Money is a medium of exchange. It is a unit of value that acts as a signature of wealth. Money can operate in this capacity regardless if it is digital or physical, as long as it possesses key characteristics. That is: it is divisible, transferable, scarce, valuable, and fungible.
If money is divisible, it can easily be broken down into smaller denominations to facilitate trade and payment of a debt. When people used to barter, it wasn’t exactly easy or clean to break their slain wild boar down into divisible parts for exchange.
Transferable means the money can easily change hands without being cumbersome. Trying to transfer chunks of wild boar would not be ideal for various reasons, including its capacity to rot and smell awful.
Scarce means money is not abundant. It is difficult to obtain, and thus it retains its value. If money were not scarce, it would lose its perceived worth. For instance, if pebbles were considered money, they would not be worth much because of their excess, which hinges on the perception of value.
Value denotes that people ascribe worth to money. Value is difficult to discuss because it is abstract. Things have value because people believe they are worth something, which is also called the subjective theory of value in economics. Perception of value appears to change based on all the properties of money.
Fungible refers to monies ability to substitute units for the same unit without hassle. If the object didn’t meet this criterion, it would not be able considered good money. No one can substitute smaller units of wild boar for the same one because organic matter alters in appearance and turns bad after a period.
A Desire to Possess Cryptocurrency
These are the root characteristics of money, and Bitcoin meets every qualification. It is highly divisible, probably the most divisible currency to ever exist. It is easily transferable via wallets and public-key cryptography. It is the apotheosis of scarce because there will only be 21 million units ever produced. And finally, it is valuable. It is valuable because people are ascribing that property to it; they believe it has worth. They are trading it, even if people deny that it is money.
If people chose not to ascribe them value and did not transfer them with the intent of receiving something in exchange, Bitcoins would not pass the test of sound money. But money need not constrict itself to some specific form either. It does not have to be tangible. It just has to adhere to the aforesaid properties and be trustworthy, and people all across the globe have already proven this with their desire to possess and trade it. Cryptocurrency, therefore, constitutes money, regardless of the way people feel and believe.
Is there a reason to believe bitcoin isn’t money?