Most of humanity has never heard of Digital Currencies and most of those who came across the name “bitcoin”, can’t even start describing what it is. Some institutions treat it as money; others, claim that it is a security, a commodity or something which does not exist but… has a value. This article will attempt to demonstrate that bitcoin is money as it is commonly represented for the layman in the mainstream media. Oh, and if you are reading this article, if you own some bitcoin, remember, you are part of an elite and an avant-garde! In 30 years time, people will call you a genius! And if you “hodl” long enough, you will get a huge reward! Let’s see why.
Money is a fiction based on trust, it is also a social construct which we inherited when we were born, as all human social abilities are innate. I will write an article about this statement in the coming weeks. But for the time being, let’s stick to the fiction of money. For this fiction to become reality, it must be backed by either some sort of power, (nowadays a state or group of states; Max Keiser says, for instance, that the dollar is backed by the supremacy of the US military forces) or consensus among the people who want to use it. Money could be anything if trusted by the people and backed by a centralized authority. For example, tobacco was made legal tender in Virginia in 1642. Notable forms of primitive money were cowry shells, cattle, whale’s teeth, etc.
Money nowadays is backed by central banks. Until the inception of Bitcoin in 2009, the common view on money was assuming that the statement “backed by public belief” followed on from “backed by central banks”, (Well, Argentinian people might disagree). Thanks to the creation of a decentralized and trust-less environment call Bitcoin, we have seen since then that this belief could be easily shattered and that a currency could simply stand and survive only through public belief and distributed computing. In other words, bitcoin as a currency was made possible by the creation of distributed computer networks and a decentralized public ledger. The “State” variable in the original equation has now disappeared and was replaced by: "The people", a natural force which is able to govern itself and take its fate in its own hands.
The state versus me
As the Internal Revenue Service (IRS) states in its document on US general tax purposes[1], in some settings, digital currencies “operate like real” money. For example, I had an herbal tea this morning in a nice alternative cypher punk coffee shop in London and I paid it with a virtual currency. But if I were living in New-York, the IRS would also recognise that Digital Currencies like bitcoin are not designated as legal tender and are not accepted as a medium of exchange in the US and therefore “have no legal tender status in any jurisdiction”. Well, it is simply not true. However, the IRS claims that all virtual currencies are treated as property for tax purposes in the United States. Yet, bitcoin, fulfils the four functions of a currency. It’s a medium of exchange, a store of value, a measure of value and somehow it is recognised as a unit of account by the people who use it. But you could say to me: “- Who cares? I bought something this morning with my digital currency; thank to the inherent nature of Bitcoin, nobody apart from me and the waiter knew about it.” And you would be right. Nobody can stop us. But let’s imagine that beyond you and me, bitcoin is fighting a bloody battle against state power. How would we be able to put our finger on it? Talking for instance of the four functions of a currency. Bitcoin is an excellent medium of exchange as it has got durability (unless someone shuts down the Internet), transportability, divisibility (with bitcoin, we entered the realm of micro payments), non-counterfeitability (so far…) and fungibility. “Buy and hodl!” is the motto of the majority of bitcoiners, also called “the 20 percenters” as bitcoin became one of the most performant store of value in recent times. “Bitcoin is the new gold”, claimed Forbes magazine a few months ago.[2] “Apparently, bitcoin is more popular than gold among investors, as a hedge against rising global uncertainties” claims the journalist, M. Panos Mourdoukoutas. Bitcoin is therefore a measure of value! Like gold, it enables the values of different products and services to be compared in the blockchain ecosystem.
Bitcoin volatility
Bitcoin's Achilles heel is its lack of stability. It is highly volatile and many refuse to grant it the status of Unit of Account, but investors and bitcoin holders seem to think otherwise. The technology behind bitcoin is still very young (if you hold some, you are still today an early adopter) but the success of Segwit and now Lightning Network proves that a better stability through scalability could be achieved very quickly. In many ways Bitcoin (stuck around $10,000 for quite a while) is more stable than, say, the British pound, the Turkish Lira, the Argentine peso and lately, oil. The Bitcoin community also argues that unlike the inflationary fiat currencies, bitcoin is deflationary since there will only be 21 million units created by Mr. Satoshi Nakamoto's algorithm.
Bitcoin is a game changer but it is far from being adopted by the vast majority. Governments all over the world, the international banking system and regulatory authorities are starting to look into its inner workings and have a hard time recognising it as a reliable currency or can’t even decide how it should be classified.
Yet, bitcoin, the money of the Internet, fulfils the four functions of a currency and it has the trust of millions of people all over the world. It is not controlled by any government or corporation and yet is attracting hundreds of millions of dollars of investment worldwide. Every day, 1,800 new bitcoins are “mined” and they are not issued by centralized players; there is literally no party who issue them. The tracking and validation of each coin is totally decentralized. You don’t need a bank nor any intermediary to deal with your bitcoins -provided that you own your private keys.
One of the main purposes of bitcoin as a currency (it has many other uses) tackles systemic issues that were summarized by Satoshi Nakamoto in his 2009’s white paper: “Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts”. Bitcoin in its money form will eventually go mainstream and imposed itself as a new financial paradigm. It’s just a matter of time.
In summary, if you want to buy your coffee or a pizza tomorrow and pay them with bitcoin, (provided that you are lucky enough to find a restaurant which accepts it), remember that you are doing something foolish. Bitcoin is rightfully a currency and can be used as any traditional government-issued money in the right environment but think that in a few months’ time the amount you spent on that pizza could reach $100 or more.
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