Bitcoin: Crytpo-currency or crypto-commodity?

By: Dele Atanda

Twitter: @DeleAtanda

Bitcoin is a finite resource like a precious commodity. Thinking of Bitcoin as a commodity makes it more understandable. An airplane manufacturer, for example’s interest in aluminium is less for of its monetary value but more for its physical properties which enable it to build higher performance, more efficient aircraft. This utility is in effect analogous to the blockchain’s ability to provide smart, interference-proof ledgers and contracts.

Commodities are prone to significant price fluctuations similarly to Bitcoin. Commodities are more supranational than currencies and less subject to price control by national governments with their value being determined more by market forces. This seems to hit at the core of Satoshi’s intention in creating Bitcoin. Perhaps the model of ‘mining’ the block chain to produce coins alludes to his thinking that Bitcoin should be thought of more as a commodity currency than as a fiat one. Perhaps Bitcoin’s best secret is that it’s the world’s first smart commodity.

Thinking of Bitcoin as a commodity also addresses blockchain’s mining conundrum i.e. blockchain is only viable if miners are rewarded with Bitcoin for mining it. The cost of mining Bitcoin will either be borne by the market or not depending on the utility of Bitcoin as a commodity. If aluminium could not deliver more value to industry than the costs of mining it then it would simply not be mined. In a similar way if the costs of extracting petroleum by means such as fracking become too expensive based on the market price of petroleum, as is the case now, then fracking based mining solutions simply become less commercially viable.

Bitcoin and its blockchain are perhaps two of the most important digital innovations of our time. To unlock the true power and potential of bitcoin we may however be better served to approach it as a commodity than as a currency.

Editors Notes: This entry has been submitted to the FINTECH Book, the world’s 1st globally crowd-sourced book on FINTECH. Readers that enjoyed this initial abstract are invited to share and like it so that it may be featured in a longer version.

The FINTECH Book is due to be released in April 2016 and is available for Pre-Order on Amazon.

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