I've been doing some thinking about crypto as currency, and I'm back with a quick and dirty analysis. I read this article, entitled "Why Bitcoin is Not a Proper Currency," and a lot of its talking points sounded familiar. Let's break it down!
There's that word again, "proper," meant only to discourage. What the author, Nicoló Patti, means here is that Bitcoin does not meet criteria necessary to be considered a currency. Bitcoin is being impolite, and a proper currency would be more amenable.
And what criteria does Patti list as necessary and proper? Money (he decides to call it money here, as a bid to your anecdotal understanding of the word):
is a store of value
is a unit of account
is a medium of exchange
Okay, we've all read Wikipedia. But why doesn't Bitcoin have these qualities?
Patti argues that Bitcoin is not a store of value due to the volatility in its price. Sure, we've been here before. I'll speak more about volatility in a moment.
He then goes on to talk about units of account. A person using a currency must be able to know, by some means, how much something should be valued in that currency. Currently, crypto valuations are paired against fiat currencies to make sense of their value. Patti uses the throwaway argument that it's hard to measure value in bushels of corn, but if you were a corn trader, you would most likely have a very keen sense of those matters.
I personally have a hard time looking at trading pairs that aren't USD because it's the currency I'm most familiar with, but the understanding I've developed doesn't give fiat any special status. Any object valued by a group can be used as money if they develop the rules for value assessments and use. Money hasn't existed forever. We made it. Now we want to improve it.
Finally, can Bitcoin be a medium of exchange?
No, lol, are you serious? But Potti argues that the problem is lack of broad acceptance, which certainly applies.
The oft repeated argument goes that Bitcoin could never be a store of value because of the price volatility....
And then 2020 fully matured and now everyone is talking about how it is the new gold, but this is not the sort of value storage Potti means. He means price stability. A reliable Euro. Consistent buying power.
But the volatility we see in most crypto markets is not driven by people wanting to use Bitcoin as money, but by speculation and media hype.
Everything we've said about Bitcoin above applies to BCH as well, except BCH has made some of the improvements necessary to enable it to be digital money:
low fees and fast, secure confirmations make it a means of exchange.
broader acceptance would stabilize its price and allow for the wider adoption necessary to be the store of value that all those bank economists could finally count in
BCH seems well positioned to demonstrate the core of the cryptocurrency project: that it is possible to decentralize money and to empower the individual in doing so.
One further note: Potti seems unconcerned with the inelastic supply issue I talked about in my previous article. That is something I'll be looking into in the future.
I hope you enjoyed my thoughts. I'm certain I'll be back for more. Leave a comment if you have any thoughts and catch me on noise.cash!
Photo by Karolina Grabowska from Pexels