There are a variety of opinions on what constitutes a good currency. The following seem to be fairly universally agreed upon.
- Generally Accepted - Many people must accept the money as a settlement of debt or as a discharge of obligation.
- Durable - Its quality/value does not deteriorate over time, which is why we do not tend to use food products as money.
- Divisible - If you divide the money in half, each half should be worth 50% of the whole. This is why we tend not to use diamonds or artwork as money.
- Stable/Consistent - The value does not fluctuate substantially with time.
- Transportable - It is easy to move from one place to another.
- Scarce - It is difficult to acquire.
- Easily recognizable - It needs to be obvious what it is, mostly for the purposes of #1.
- Difficult to Counterfeit - This mostly has to do with #6.
In addition to these, there are a variety of disputed desirable characteristics of a good currency.
- Elasticity - It must be able to expand or contract as needed in the economy.
- Economical - The cost to produce it must be less than its value.
- Inherently Valuable - The money should have a use besides its use as money that gives it intrinsic value.
- Long history of acceptance - A long history of acceptance benefits #1 and #7.
- Supervised - The currency is tracked by a central authority to avoid economic catastrophes.
How does Bitcoin fare in these critera?
- Generally Accepted - Bitcoin is becoming more and more widely accepted, but is not generally accepted. It is thus not an ideal currency in this respect.
- Durable - Barring a massive EMP hitting the planet and wiping out most computer technology, bitcoins are satisfactorily durable.
- Divisble - Bitcoins are easily divided.
- Stable/Consistent - Bitcoin prices have been erratic since their conception. They are not ideal as a currency in this way.
- Transportable - Bitcoins are very easy to transport and literally weigh nothing. As long as you have a mobile device, you have them available.
- Scarce - Bitcoins are scarce by design. They are superior even to precious metals in this respect.
- Easily recognizable - Yes, assuming you know what bitcoins are, it is easy to verify the validity of a bitcoin.
- Difficult to Counterfeit - Bitcoins appear to be impossible to counterfeit. Perhaps some day someone will figure out a way, but so far, it would be far easier to counterfeit any fiat currency.
As far as the generally agreed upon qualities of a good currency, I would say Bitcoin makes 6.5/8 of them. I am giving them 0.5 for "Generally Accepted."
- Elasticity - As bitcoins have come into high demand more and more people have been mining them, providing them some degree of elasticity. As time goes on, their scarce nature will ultimately undermine this quality in the way monetarists argue for it. I will generously say 0.5 for this.
- Economical - At the moment, it is cheaper to produce bitcoins than they are