How Bitcoin Is Real And Fictional Money

What is the Definition of Money?

According to economists and financial gurus, money generally serves three distinctive functions. It is a unit of account, store of value, and a medium of exchange. With the above-mentioned checklist, I can determine if my asset can rightfully be designated as money. Professor David Yermack in 2014 gave a very “short-sighted” definition of Bitcoin. He defined it as “a marginally useful money-like commodity popular among hackers and opponents of the banking system.” Meanwhile, a few days ago, Kansas City Chiefs Player (Sean Culkin) announced he will take his entire salary in Bitcoin, describing Bitcoin as the “hardest form of currency”.

Today, we can see that Bitcoin has entered the financial mainstream and has been widely accepted as a means of payment by many corporations like Tesla, PayPal, etc. Many financial institutions like JP Morgan are buying and holding Bitcoin. This brings us back to the question, is Bitcoin real money and fictional money?

Why Bitcoin is Real Money and Fictional Money

Just Like Money, Bitcoin is also a Collective Fiction

Historically, money has always been the thing humans all agree has transactional value. In the time of the barter system of trade, our ancestors agreed that items like farm produce have transactional value. We have also moved from the time of bronze and silver as money. Fiat currency is widely used today. According to Michael Casey, money is a collective imagination and there is no intrinsic value that makes money, money. Money is whatever object we agree should be money. Today, Bitcoin is the latest phase in our shared imagination of what money is.

We have businesses and individuals who accept to be paid in Bitcoin, thus Bitcoin is already a means of exchange. On the basis of serving as a means of exchange, we can agree that Bitcoin is real money. The New York Times recently ran an article with the caption, “we are all crypto people now.” This is a pointer that we are gradually getting to where Bitcoin will be adopted in the mainstream as a means of transaction.

Bitcoin is a Unit of Account

The definition of a unit of account is that a currency enables the user to keep accounts, value transactions, etc.

It is widely evident that we can use Bitcoin as a unit of account. All the available cryptocurrency exchanges use crypto as a unit of account. Therefore, for this characteristic, it is right to say that Bitcoin is real money and fictional money. By definition, the underlying blockchain technology is a ledger. Also, Bitcoin is by definition a coin encapsulated on a ledger. Anyone saying that Bitcoin is not a unit of account might as well say that Europe is not a continent.

Bitcoin is a Great Means of Exchange, Just Like Money

One of the core characteristics of money is that it is a means of exchange. It is impossible to reverse a Bitcoin transaction unlike payment by credit cards. I cannot receive a Bitcoin transaction and claim that I didn’t. The transaction can be verified publicly. The world has gone digital, and we currently have some of us rendering freelance services. As a freelancer, I can accept Bitcoin or other cryptos as a means of payment for my services. Thus, Bitcoin can be used as an exchange of value and cross-border transactions.

As a decentralized peer-to-peer payment system, we can define Bitcoin as fictional money. It shares the same features with fiat and commodities like gold. Some of these features include portability, durability, divisibility, fungibility, scarcity, and highly recognizable. Such characteristics make it difficult to argue against the fact that Bitcoin is real money.

Bitcoin is a Store of Wealth

One of the major characteristics of money is that it is a store of wealth. Due to the volatile nature of cryptocurrencies in general and Bitcoin in particular, many people don’t see it as a store of wealth. Well, such people will certainly have a rethink after reading this. Fiat money also fluctuates, and we have seen the US Dollar, Swiss Franc, Pound Sterling go up and down in value. Price fluctuation is not particular to Bitcoin. Although it is highly volatile, storing wealth in Bitcoin is far better than doing it in Venezuela’s money or Zimbabwe’s.

Bitcoin Is More Than Just Money

We have pointed out reasons that make us believe Bitcoin is real money. However, a closer look shows that Bitcoin is more than just cash. Although it functions like cash, we can also use it as a speculative asset. Most people purchase Bitcoin to hedge against inflation while others do it to profit from the volatility. When we consider the metaphysical properties of Bitcoin, we can agree that the question of whether Bitcoin is real money is limiting.

Closing Thoughts

From the information in this post, we can agree that Bitcoin is real money. Now, the major question should be whether Bitcoin is money with great benefits to be used. Corporations and businesses are accepting Bitcoin as a means of payment and store of value/wealth. The current development is a pointer that the future is bright for the pioneer cryptocurrency.

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