What is money?
Money has taken many forms throughout history, as you can see from the history of money. Experts have frequently listed different traits that money has had, and those traits have changed many times. It’s said that good money should be scarce, portable, divisible, uniform, durable, acceptable. Does Bitcoin have these traits? Could it be considered “good money”?
One critic, David Golumbia, charges that Bitcoin is not good money. In a recent interview, he states that the general accepted definition of money is that it has three functions:
1. Store of Value
The value of the token should be relatively stable over time with regard to the market. You should be able to store your money for a long period of time, such as a year, and then have it be worth the same amount when you use it later.
2. Medium of Exchange
You can use the token to buy and sell things. He disputes that cryptocurrency has been living up to this description.
3. Unit of Account
The way prices for goods and services are set.
Inflationary VS Deflationary Currency
Fiat currency such as US Dollars are inflationary
The US Dollar is an inflationary currency. The value of the US Dollar relative to goods and services slowly goes down, meaning that anyone who puts US Dollars in a box for 1 year will open it after 1 year and will be able to buy less than before. One reason for this is because the US Dollar is printed. The Federal Reserve prints money and puts it into circulation.
Bitcoin is Deflationary
Bitcoin is a deflationary currency. This means that it is scarce. There will only be a total of 21 million Bitcoin, ever. We know this because it is programmed into the Bitcoin code. This means that, over time, as more and more people use and own Bitcoin, or as Bitcoin exist circulation and is not replaced, the value of Bitcoin over time should increase.
Is Bitcoin a good store of value? Some argue not.
At the end of 2017, the price of Bitcoin reached nearly $20,000 USD for 1 Bitcoin. Since then, it has hovered between $6,500 – $10,000 for 1 Bitcoin. That’s a decrease of 50% – 70% in value. Of course, in early 2017, Bitcoin was under $1,000 for 1 Bitcoin, so this all happened after a massive increase in value.