💰 Bitcoin: The Birth of Money ❓ 💰

rtdcs (63)in #bitcoin • 7 years ago

The question whether or not bitcoin is a coin intrigues many economists, and most of them says that it is not a currency.

Their justification is that bitcoin is not a reserve of value, it is very volatile and it is not unit of account. They say it can be a medium of exchange, but it does not show all three classical functions of money, so it is not currency.

Another way to define currency would be as the medium commonly used or universally accepted, and in this case bitcoin would not be considered a currency either.

But the fact is that we are witnessing for bitcoin the "birth of money". Keep reading the text that I will explain better.

We can even say that today bitcoin would not be considered a currency under almost any usual definition of currency, but the question I would raise is: Can bitcoin be a coin? In my view, analyzing from the point of view of economic theory, there is no reason to prevent the bitcoin from becoming a relevant currency if not the main currency.

So now you might be wondering, "So bitcoin could come to supplant the dollar one day?" In theory I think so, but it would be very remote and unlikely today. For this to become reality the Bitcoin system would have to evolve a lot and a series of events would have to happen, but the interesting fact is that Bitcoin's understanding has helped economists to understand the concept of money more, and how money "is born , Develops and becomes money", that is, understanding how a commodity is capable of becoming a universally accepted currency.

Having said this, we return to talk about the three functions of a currency (value reserve, medium of exchange and unit of account). These three characteristics do not arise instantly.

Bitcoin, although theoretically still not considered by the economists a currency, is currently used mainly as a reserve of value, which is the first step towards the rising of a currency. Although volatile, BTC holders believe in their future potential and store with them, and the very first step in creating a currency is to consider a commodity as a store of value.

Let us now speak of the second step for the rising of a currency, which would be its use as a medium of exchange. At this point comes the criticism that bitcoin is not widely accepted as a medium of exchange, including companies that advertise accepting bitcoins as payment but in fact they are not accepting BTC.

These companies receive in dollars or another currency, using an intermediary that facilitates the payment in bitcoin by the consumer, but the company itself receives in "normal" currency. This is true, but I say that the role of the medium of exchange will be verified much later, when the value reserve is more present, the price is much more stable and more users and companies are willing to receive and store their BTCs, since they will Perceive in this asset much more value. That is, the medium of exchange comes well after the stage of reserve value, when the price actually stabilizes.

Already for the third step, which would be the unit of account, it is more remote to happen with bitcoin.

If bitcoin works as a unit of account there we can indeed consider that it has become a currency because it is at this time that all goods and services will be priced in BTC. If this stage is reached, the BTC will have enormous liquidity, as as Carl Menger said: "Money is the most liquid good of the economy", it is the good that presents almost perfect liquidity. So if that liquidity happens with bitcoin it will be in a long time, maybe decades.

Conclusion:

Can bitcoin turn out to be a coin? Yes, it can be, unlikely but it can! In any case, what we are witnessing is the birth of genuinely private and voluntary money, as well as observing its monetization. This is sensational, not just as an enthusiast but as a lover of monetary theory who is witnessing what may be the birth, growth, and adoption of a currency in the market.

I hope you enjoyed the post. If you have questions you can leave your comments and I will respond as soon as I can.