Writing in Sapiens Yuval Hariri defines money
Money is anything that people are willing to use in order to represent systematically the value of other things for the purpose of exchanging goods and services.
Money is thus a universal medium of exchange that enables people to convert almost everything into almost anything else.
Using this definition Bitcoin is money. Recently, it has not been an efficient medium of exchange. This does not negate its ability to serve as one however.
Continuing Hariri writes
Money is the most universal and most efficient system of mutual trust ever devised.
This is where Bitcoin shines, because while its current transaction volume is minuscule versus the most widely used currencies such as USD. When compared to the long tail of currencies available in the world. It is much more efficient to transact in Bitcoin versus trying to exchange value directly.
For example if someone in Kenya needs to transact with someone in Peru. It will be more efficient to transact in Bitcoin versus going through the traditional financial system.
Even with Bitcoin’s issues. These parties would almost certainly incur more than $32 of fees and it would take days if not weeks for all the moving pieces of the transaction to settle through banks. Versus the day or so it might take with Bitcoin even with the current delays
This makes Bitcoin money whether or not you can use it to pay taxes or buy a cup of coffee. It is why you see Bitcoin used for large transactions across multiple countries. It is a good way to facilitate complex cross border exchanges efficiently.
Bitcoin adheres to the two universal principles of money Hariri identifies
- Universal convertibility: with money as an alchemist, you can turn land into loyalty, justice into health, and violence into knowledge.
- Universal trust: with money as a go-between, any two people can cooperate on any project.
Once they have their Bitcoins our transactors can exchange them back into dollars and bolivars or hold onto them if they think over the long term. Their purchasing power will be better preserved in Bitcoin versus their other options.
This is a point often lost on observers in regimes with relatively stable currencies. If you do not have full faith in the government of your country to maintain your purchasing power. Than it is rational to hold a portion of your assets outside your home countries currency.
As a hedge against the possible loss of that purchasing power in the future.
The continuing digitization of money makes these types of hedging transactions a rational response to an increasingly volatile world.
Writing in Logical Emergence of Money from Barter Nick Szabo outlines the argument for holding multiple currencies.
Trying to shop or otherwise do business in a world of multiple currencies, much less of pure barter, has always led to confusion, error, and overly complex accounting, and would do so even given the costless teleportation of Nitropia. But with sufficiently low mental transaction costs and sufficiently unpredictable exchange rates, it pays to hang on to multiple currencies, and a world of multiple currencies is the equilibrium
Bitcoin is the catalyst for the move towards this new equilibrium. With many other currencies launching from its foundation and using it as the medium of exchange to fund their projects.
On the other end many fiat currencies, like the US Dollar, are already largely digital with electronic transaction volumes vastly exceeding physical ones. While central banks around the world are investigating blockchain as a tool to further digitally enable their currencies. This ongoing digitization serves to further reinforce Bitcoin’s standing as money.
As all currencies digitize enabling automated transfers of value between them. Fees for transactions in native digital currencies like Bitcoin, and currencies in general, will plummet. Causing transaction volumes in all currencies to meaningful increase as frictions for exchanges between them are systematically eliminated.
Leading to the world at large learning what Hodlers already know. Bitcoin is money.
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