While Bitcoin might chart up news rankings for the fact that it has empowered early investors to become cryptocurrency millionaires overnight, many have questioned just how the new paradigm is designed to operate as a worldwide currency and as a new monetary system.
Fundamentally, Bitcoin is a peer to peer cryptocurrency that is designed to operate as a scarce digital commodity – and similarly to how gold and silver were used centuries ago, Bitcoin is inherently designed to satisfy the major qualities of money.
Bitcoin fundamentally relies on a new technology called blockchain – which is a decentralized public ledger wherein transactions are verified through cryptography rather than by a trusted middleman.
While the first step for any object to become a currency is to possess some form of value, we can evaluate that there are five simple properties that Bitcoin – or any other intended currency – needs to possess in order to operate as money.
Chiefly, these properties are durability (it doesn’t degrade over time), transportability (it can be easily transported from location to another) fungibility (where every unit is equivalent to every other), divisibility (where it can be broken down into smaller units), acceptability (where it can be exchanged for goods and services), and scarcity (in that it has a limited supply and is difficult to fake).
So, what makes Bitcoin ‘real’ money?
Bitcoin satisfies all of the major properties and utilities necessary for it to operate as a currency, despite the fact that the cryptocurrency’s novelty poses some interesting challenges – and its acceptance by both general consumers, media, and traders worldwide is yet to be established.
While gold still sets the standard of durability throughout human history and remains the most recognised form of a universally applicable currency, Bitcoin has developed durability over the past nine years of its existence – rapidly becoming accepted as a new form of ‘digital gold’.
Similarly, Bitcoin is easily transportable in the sense that it can be easily sent from one place to another over the internet with ease, and is designed to fungible, as any bitcoin can be exchanged for another. Transactions on the Bitcoin network can take as little as ten minutes to verify – meaning that participants can transact with one another at the same speed as if they were in the same neighbourhood despite being half a world apart.
Bitcoin might further offer greater divisibility than gold, silver, or other fiat currencies, as it can be divided down to infinite values – though that doesn’t impact on the fact that Bitcoin itself is inherently scarce thanks to the fact that there will only ever be 21 million Bitcoins in circulation. As Bitcoin accumulates in value, we might turn to using smaller denominations of the cryptocurrency – with its smallest unit being called a ‘Satoshi’ – to price both goods and services similarly to how they are presently valued with fiat currency such as the US Dollar.
But who accepts Bitcoin?
With these properties in place, the major property Bitcoin still needs to overcome in its bid to cement itself as ‘real’ money that one can readily transact with is that of acceptability – where storefronts, companies, and people around the world begin to accept the cryptocurrency as tender for goods or services offered.
While one popular story saw one hungry customer pay 1000 BTC for two pizzas in early 2011, and in the years since numerous services, merchants, and even payment gateways have accepted Bitcoin as tender. CoinInsider reveals that notable adopters range all the way from Microsoft, Virgin Galactic, PayPal, and even Zynga.
For those who purchase cryptocurrency, Bitcoin – and other digital currencies similar in execution – offer an exciting way to become part of a new financial monetary system that, if accepted, offers to utterly revolutionise the way people around the world transact for both goods and services rendered.