Bitcoin is an open source software that uses peer-to-peer technology, which aims to function as a payment system and a new kind of money. Its creator or group of creators is known only by the pseudonym of Satoshi Nakamoto when he published the Bitcoin white-paper in October 2008. The Bitcoin design is public, no one owns or controls Bitcoin, and everyone can participate. The success of Bitcoin has been so great that today, Bitcoin is known as digital gold or the money of the Internet.
Since 2016, I have been shopping with Bitcoin in stores such as Amazon (via https://Purse.io ) and Overstock.com. I also use Bitcoin for donation to a not-for-profit organization such as Greenpeace and Heifer International. In the following paper, I will provide additional arguments that support my opinion that bitcoin is money.
Satoshi Nakamoto (2008) said, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Let’s see the definition of money: money “is any clearly identifiable object of value that is generally accepted as payment for goods and services and repayment of debts within a market or which is legal tender within a country” (Mishinkin, 2007). The key word in both definitions is ‘payment.’ For this reason, by definition, if Bitcoin is payment, then Bitcoin is money.
The four main functions of money are medium of exchange, store of value, unit of account, and measure of value. Let’s do a deep-dive analysis of these functions.
The medium of exchange is the capacity to intermediate the exchange of goods and services. My experiences shopping in Overstock and other stores is evidence that Bitcoin is a medium of exchange. The characteristics of a good medium of exchange are durability, fungibility, divisibility, transportability, non-counterfeitability, and scarce-ability. Let’s compare Bitcoin and fiat money:
Durability: Bitcoin is digital, so there’s no question that it is better than the fiat currency—of which the majority are paper bills.
Fungibility: This refers to the fact that each unit is identical. It should be noted that although the bitcoin is identical, every bitcoin can be traced.
Divisibility: Bitcoin is divisible by eight (8) decimals (with the potential of 1/million). The fiat currency is divisible by two (2) decimals.
Portability: Bitcoin is as easy-to-send as an email. Fiat money takes days.
Recognizable or non-counterfeitability: A day-to-day problem encountered by Bank Tellers, and I was a bank teller, is the fake money. In the case of bitcoin, you need more than 13 supercomputers to hack the Bitcoin network.
‘Store of value’ is the capacity to save, store, and retrieve value. The monetary policy of bitcoin is already defined in the code; it will be 21 million bitcoins. The scarcity or limited supply is the stronger quality of Bitcoin. I have included bitcoin as part of my investment portfolio since 2016 because of protection of the power of purchasing from the effect of inflation. That is why some people call Bitcoin the ‘digital gold,’ as gold has been the store of value for thousands of years.
A measure of value and unit of account is the standard measurement of the value of goods, services, economic activities, asset, and liabilities. A standard unit of account that allows us to compare values and prices. Bitcoin is the reference price when you evaluate other digital assets. For example, go to the website www.coinmarket.org; the reference prices are in Bitcoin and USD. Also, if you go to the most popular site for fiat currency, such as Oanda.com, you will see that they include Bitcoin as one of the currencies that they offer to exchange information. This is evidence that Bitcoin functions as a measure of value and unit of account.
In 2011, I was in Peru. One morning, I tried to buy a newspaper with US dollar, but nobody wanted to sell to me because they wanted Peruvian soles. I remember that I offered, in US dollar, eight (8) times the price of the newspaper. From this date, I learned that I need to have some local currency each time I travel to another country. I also understood the problem of the ‘double coincidence of wants.’ From the historical perspective, you will see that no currency is perfect in all these dimensions. In today’s system, we see this cost in the exchange fee.
As you can see in this essay, Bitcoin passed all the tests of what money is. My experience demonstrated that I can use Bitcoin as I use PayPal, ApplePay, US dollar, and any credit card. Money, as with any other technology, is still evolving and has been euhemerized. I see Bitcoin as part of the evolution of money. Bitcoin is not perfect in all dimensions of money, but as of today, it is the best form of money.
References:
Nakamoto, Satoshi. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. https://bitcoin.org/bitcoin.pdf
Mishkin, Frederic S. (2007). The Economics of Money, Banking, and Financial Markets (Alternate Edition). Boston: Addison Wesley. p. 8. ISBN 0-321-42177-9.
Bitcoin Logo: By Bitboy - This file was derived from:Bitcoin logo.svg, CC0, https://commons.wikimedia.org/w/index.php?curid=30202095
Note: The original blog was published in Spanish on my blog: cpajesuspizarro.com
Donation: https://fundraise.heifer.org/fundraiser/1237696
In Digital Currency: https://www.heifer.org/what-you-can-do/give/digital-currency.html