Bitcoin: The best money the world has seen

Bitcoin can be confusing because it’s abstract. We can’t hold it and thus we have trouble grasping it. While bitcoin is not as intuitive as handing someone a $20 bill, it has properties that make it the best form of money we’ve ever seen.

There are six characteristics that are traditionally used to evaluate currencies:

Scarce: Currency must have a limited supply. If the supply was infinite, or if governments continued to print money, it would become hyperinflated.

Durable: Currency has to be built to last. It can’t deteriorate in a few years or else it would not be worth keeping.

Divisible: Currency can’t be traded only in large amounts. It has to be divisible so you can buy smaller items with it. Imagine if you only had $100 bills, it wouldn’t make much sense to buy a pack of gum.

Portable: You have to be able to move currency from place to place and person to person. At some point, carrying coins gets too heavy and thus, we use paper because it’s lighter and fits nicely in a wallet.

Easily verified/accepted: If people can forge your currency, the real thing becomes less valuable. Vendors also need to be able to see that what you’ve handed them is real and not a forgery. People also need to accept this currency as valuable.

Fungible (uniform): An old-looking dollar should be worth the same as a newer looking one. This makes sense with money, but think of sneakers. A new pair is worth much more than an old pair of the same kind. Currencies can’t operate like sneakers.

Let’s think about bitcoin with regards to these characteristics:

Scarce? Yes, only 21,000,000 will ever be created. This certainty is key because in our current monetary system we have to trust that the government will not print excess money to pay its own debts.

Durable? Bitcoin is computer code that will theoretically last forever. Thousands of people have full records of all the transactions that have ever occurred.

Divisible? Bitcoin is divisible out to 8 decimal places. The smallest unit is called one “satoshi” in tribute to it’s founder, Satoshi Nakomoto. Right now one satoshi is worth $0.0000065.

Portable? Bitcoin is the most portable currency we have ever seen. It can be transferred anywhere on the internet. You do not need to be physically present to hand over cash, nor do your banks or credit card companies need to communicate. Bitcoin can be accepted anywhere there is connectivity.

Easily verified/accepted? From a technical side, bitcoin is very easily verified and accepted. The network is extremely secure and virtually fraud-proof. From a non-technical side, this is where we run into our first road bumps. Bitcoin is not accepted at many stores so it is difficult to use it on an every day basis. There is certainly a market for buying bitcoins (the price is ~$650/coin), but many vendors aren’t ready to accept it now. There are ways to transact in bitcoin while the vendor will still recent a payment in dollars, but that is beyond the scope of this piece.

Fungible (uniform)? Bitcoin is perfectly uniform. One bitcoin = one bitcoin now matter when or where it was created.

Overall, bitcoin wins on scarcity, durability, divisibility, portability and fungibility. It loses a little ground on acceptability, but that is a roadblock that we are slowly overcoming. It won’t take long for more and more people to catch on to the fact that bitcoin is the way of the future.

So next time someone asks you, “is bitcoin money?” You can respond with, “yes, and it’s the best money the world has ever seen.”