In this short article, I will try to answer the question of whether Bitcoin is currency and the various justifications for my assertion.
It is worth noting that Bitcoin is traded on numerous “crypto currency” exchange platforms as currency pairs; BTC/USD, BTC/EUR, BTC/GBP. In spite of these developments, there are still doubts about what exactly it is. For many I have personally spoken to, the fact that it is not regulated, in some cases tangible and very different from the traditional currency we have further fuel the doubts about what Bitcoin is. Recent price of Bitcoin has also caused some to believe it is a financial asset, with the inability to point out its underlying asset still unanswered.
In my attempt to answer this question, let us address the concept of “money” or currency briefly. Money was a concept, and was implemented to serve three main functions; medium of exchange, store of value, and as a unit of account. To further drive home my point, allow me to say money or currency is the traditional notes (paper) and coins, which for the purpose of this article I will call “paper money or currency”.
“Paper money” is a concept, which sought to help people achieve the functions of medium of exchange, store of value, and as a unit of account. Bitcoin is accepted in the exchange of value (goods and services) in most economies today. Even in some jurisdictions, it is acceptable to pay your children’s fees in Bitcoin (medium of exchange “checked”). The price of goods and services can be priced in terms and Bitcoin and it provides a way for sellers to charge a fair price for their goods and services (unit of account “checked”). The store of value function of money may further drive controversies due to recent waves of news about the price of Bitcoin in relation with other currencies. However, Bitcoin could reasonably maintain the value of goods and services over time. Bitcoin has an added benefit of being very liquid, with the influx of exchanges all over the world. In this regard, Bitcoin fulfils all three conditions and which means it qualifies to be called money or currency, which is what it is.
The difference however is that “paper money” is printed on papers, is tangible; while Bitcoin only exists on screens of devices. In other words, Bitcoin is virtual currency. This is the part of the communication which we have not done well in driving home. “Paper money” is similarly a concept for achieving the above-cited functions of money, following the rigidities of the barter system. However, unlike Bitcoin, it was printed on notes and minted on metal coins. “Paper money” costs governments millions of dollars to print and mint and regulated by central banks. In the case of Bitcoin, a very complex mathematical algorithm generates the Bitcoins in a process called “mining” and is not regulated by any governmental body.
Recently the “value of Bitcoin” has been very volatile and like in any currency exchange transaction, we may exchange less GBP for same unit of USD. The same dynamics play out when it comes to Bitcoin. We find that more USD and other “paper currencies” are being exchanged for same unit of Bitcoin. Just like any currency exchange, the twin forces of demand and supply drive the price of money, among other things. So the value of Bitcoin isn’t rising or falling, it is the price of Bitcoin in relation with other “paper currencies” keeps rising or falling due to the demand and supply dynamics.
At this point, Bitcoin like any other currencies may have its shortfalls however, the fact is it is currency, which is fast gaining popularity globally. Maybe you may want to try buying $10 worth of Bitcoin and try buying an item online to have the Bitcoin experience as the new currency on the block. Tel me about your experience by sending me an email at firstname.lastname@example.org
By Lawrence Ansah-Addo.