Is Bitcoin a Currency?
Introduced in 2008 by the pseudonymous Satoshi Nakamoto, bitcoin was designed as a digital version of cash. Introduced in 2008 by the pseudonymous Satoshi Nakamoto, bitcoin was designed as a digital version of cash.
The utility of Bitcoin is as a monetary asset/good, i.e. money. It’s part of the new class of assets – Crypto. Just like gold…which had no utility for over 4,000 years other than as a monetary good.
By definition, monetary goods have no utility. If they did, then they could never function as money because that would make them into consumption goods or capital goods.
Consumption and capital goods have always failed when used as monetary goods, such as copper, cattle, salt, etc…
These assets are bearer in nature – like cash. Whoever has possession is the owner.
Like any asset, it’s value is a function of demand and supply.
Supply is algorithmically pre-destined and known in advance. Demand fluctuates according to real world conditions.
While it is frequently referred to as “currency”, that’s not entirely accurate. Currency is subject to sovereign control and forced recognition by the government of the respective nation. No business can be forced to accept bitcoin as a form of payment. And owing to the volatility and certain current technical limitations, it can’t really function as a currency you use to buy a hamburger for example.
However, what it does do well is allow for cheap and pseudonymous transactions across borders which governments or other intermediaries can’t block or censor.
As such, it is similar to Gold, but without need for physical handling or possession.
Bitcoin fanatics will argue that currencies, such as the US dollar and Euro, are backed by nothing but faith/trust. Fiat currencies are backed by the full faith and credit of the governments will issue them. This includes trillions of dollars in natural resources, the taxable authority of the governments, and the military might of countries to enforce their use.
“Bitcoin, on the other hand, is a trustless monetary asset which means you don’t have to put your trust in a counter-party such as a government or institution. It’s a rules-based, fully transparent monetary system.”
Bitcoin ultimately requires the trust of users to accept it as a store of value and exchange. So the statement about being trustless will actually become true but for entirely different reasons than the mathematical proof behind blockchain.
One note – it is important not to conflate Bitcoin with other crypto assets. Each works differently and proposes to service a different use case.
Bitcoin’s Track Record So Far
In 14 years, Bitcoin has come from being worth less than a penny to $30k. Meanwhile over the same time frame, USD is worth 30% less according to the BLS.
- In 2017, Bitcoin went from $900 in January to more than $19k in December. If you remember correctly, this is when everyone was comparing Bitcoin’s rise to the Tulip mania bubble of 1636-1637 in the Netherlands. Bitcoin’s price fell to a low of $3k by December of the next year. And yet, it survived
- In the midst of a global pandemic, Bitcoin went from being worth $7k in January to a low of $5k in March. And yet, it survived.
- During the most recent bull run fueled by money printing, leverage, fraud, etc, Bitcoin rose to more than $65k. As we all know the Fed began raising rates in late 2021. Bitcoin went from $65k in November of 2021 to a low of $15k in November of 2022. And yet, it survived.
Bitcoin has been declared dead thousands of times by people from all walks of life. And yet, it survives.
It’s software. A computer program. It doesn’t care what anyone says or does. It just continues to do what it was programmed to do.
