Bitcoin - Currency or Digital Gold?steemCreated with Sketch.

in bitcoin •  6 months ago

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Bitcoin finds itself in a predicament. I write this is as a supporter of Bitcoin. The original goal of Satoshi was for Bitcoin to be used as a digital currency, in essence a replacement for fiat currencies that are constantly losing intrinsic value due to central government money printing and debt-laden balance sheets. The issue Bitcoin has today is that (in my opinion) it has deviated from its’ original purpose to serve as a means of exchange. As the price of Bitcoin has continued to rise, a large portion of bitcoin users switched from viewing Bitcoin as a transaction based currency to an asset for investment purposes. This poses a problem as I believe Bitcoin cannot function as both a currency used for the purchases of goods and services as well as a speculative asset.

If we take Fiat currency that is used by people to purchase goods and services, a majority of people are not buying Fiat in the hope of appreciation, yes there are speculative trades in the forex market but as a long-term investment proposition people are not interested, reason being is that there is an accepted 'value' of the currency amongst users in the society that they believe we see little change.
Bitcoin & the 6 characteristics of money

DurabilityPortabilityDivisibilityUniformityLimited SupplyAcceptance
YesYesYesYesYesLow

When analysing the characteristics of money and Bitcoin, acceptance is the only criteria that is not satisfied. While we are still seeing acceptance of Bitcoin increasing by different retailers and organizations they are in a minority and the likelihood of older generations ever accepting bitcoins is very low in my opinion due to the lower level of technological understanding in older generations and ‘old school mentality’. Most governments are made up of older generations, thus I find it unlikely that Bitcoin will ever gain status as a currency on level with FIAT.

The likes of Peter Thiel and The Winklevoss twins have stood firm in their belief that Bitcoin is "Digital gold" - a store of value. Let's look at some characteristics of Gold.

Bitcoin & the 9 characteristics of Gold:

ScarcityDurabilityPortabilityDivisibilityAuthenticityStorageFungibleHard to CounterfeitWidespread
YesYesYesYesYesYesYesYesNo

Much like the characteristics for money, Bitcoin's only criteria not satisfied for Gold characteristics is popularity (widespread). I believe adoption as 'digital gold' or a store of value will be easier to achieve as I would speculate that there will be traditional financial institutions that will be able to provide this to the market, thus reducing the technological hurdle faced for older generations.

How it plays out I don’t know, however what I do know is that if there are 50% of users treating Bitcoin as a traditional currency and 50% of users treating Bitcoin as a long term asset investment we are going to see some issues. Why would you spend any Bitcoin if the belief is that it will appreciate in the future?

What are your thoughts?


References:
https://www.stlouisfed.org
https://tradeblock.com

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Love you writing... Keep it up.

Hey there

Love your writing and your approach. I just resteemed and have followed you. I look forward to more content.

As to your post, I use Bitcoin as a currency. And whenever I get any significant amount of it, I use it to buy something else hahaha. Having said that, I think it's entirely possible BTC could seriously increase in value at the drop of a hat.

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Thank you so much.

Interesting that you use both, I hadn't considered that scenario. Now that you mention it I would imagine a number of other people are doing the same.

Nice find @Drwom
With cost of processing transactions so high, In terms of electricity, BTC is probably a suboptimal choice as a currency.

As a store of wealth, the speculative impact is still too high, then again, over a longer time frame, a rising value is not a bad thing.

Intelligently and well written, great to see your work here - thank you.