Functions of Money (1 of 3), The Case of Bitcoin

If we look at the functions of money, which include the medium of exchange, store of value and unit of accounting, Bitcoin as a cryptocurrency could fit well into all of these. While it is still quite a distance from the mainstream application at the time of writing, we are seeing more and more acceptance and adoptions from well-known names.

Virgin Galactic accepts Bitcoin as a way to pay for space journey from its future astronauts.

Microsoft's customers can redeem Bitcoin to deposit funds into their Microsoft account, where they can use it to purchase games, movies, and apps in the Windows and Xbox stores. PwC, the consultancy and “Big Four” accounting firm, announced in November 2017 that it accepted its first payment in bitcoin. These are just some of the examples of big players adopting the cryptocurrency. It shows that Bitcoin is not only accepted by tech-minded people or small merchants (such as those Durian sellers in Malaysia who exchanged their fruits for some Bitcoins) but also gaining ground with big brands and top corporates.

Given the recent movement of Bitcoin, a UK's online bookmaker is putting McDonald’s at odds of 1/2, expecting Brits to be buying their Big Macs with the cryptocurrency before the end of 2018. Will people be paying for their burgers and fries in Bitcoin pretty soon? Well, this is not something new. Bitcoin had been used to purchase food back in year 2010.

Someone in 2010 bought 2 pizzas with 10,000 bitcoins.

On May 22, 2010, a developer, Laszlo Hanyecz bought two pizzas for 10,000 units of a then-little-known digital currency called Bitcoin. If he would have to know how much a unit of Bitcoin would worth in 2017. This is definitely the most expensive pizzas in the world to date.

If you take a deeper look into the examples given above, those big guys accepting Bitcoin as one of the payment methods would either have their own agendas or they are actually making a good profit out of their service. In other words, they can afford the fluctuation of Bitcoin’s price.

Bitcoin's challenges as medium of exchange

There are two major challenges if Bitcoin were to go mainstream and be accepted by the mass market. They are the transaction fees and price volatility.

The first challenge is obvious, if you transact a value of $5 and your fees are anything near or even more than $5, it doesn’t make any sense to use that form of payment. This is something the community ought to solve given micro-payments are still not practical due to higher fees at the time of writing.

It is also unlikely for merchants to accept a currency that fluctuates is such a wide range that it may drop 20% in value within hours. Not to say cryptocurrency like Bitcoin, even if it is any fiat money out there. In countries where the fiat currency depreciates in a fast pace, people will opt for cryptocurrencies. The reverse could happen.

While some authorities still don't believe the ability of bitcoin being a currency (medium of exchange), we are seeing more adopters for cryptocurrencies. As it has always been with any revolution, there are believers, early adopters, skeptics etc. While the community is working towards the scalability, security, and stability of the cryptocurrency, it is inevitable that there are parties looking at the failure or troubles of it, be it for their personal agenda, or simply ignorance of progressive movement.

It's a matter of choice, not so much about right or wrong. Only time will tell whether you had made the best decision at that certain point in time.

Excerpt from the book Blockchain Insider