As Bitcoin’s journey toward the mainstream continues to push forward, it is important to attempt to find out how the world sees the first cryptocurrency. With this in mind, here are some very important questions to ask: What is Bitcoin? Is it a currency? A form of money? A store of value? All of the above or none of the above? Perhaps something completely new?
Some defend Bitcoin as a superior store of value due to its scarcity, unforgeability and safe haven properties. In a recent blog post, Coinbase cited these characteristics and more to make its case that Bitcoin rivals gold as the ultimate store of value in the digital age.
While the analysis is a valid one, others would say it is overshadowed by Bitcoin’s true goal, which is to be used as a decentralized payment method, or in Satoshi’s words, “a peer-to-peer electronic cash system.”
Despite its well known classification as a “cryptocurrency,” Bitcoin cannot be a currency because it has intrinsic value. While some would argue against it, the resources spent to issue new units ensure that, unlike fiat currency, Bitcoins cannot be created out of thin air. In other words, mining Bitcoin has a tangible cost and, interestingly enough, this cost is not only used to create new units, it also ensures Bitcoin’s functionality and reliability as a decentralized ledger and international payment system.
While Bitcoin’s limitations as money are currently undeniable, overcoming these technical limitations would certainly bring an unimaginable advantages especially in countries with aggressive monetary policies and a high proportion of the population unbanked. Demand for the digital asset in countries where hyperinflation rules, like Venezuela, continues to soar.
Despite what Bitcoin was created for, the way it is used and its real-life performance will decide what it is and what it becomes. Bitcoin’s use has been mainly speculatory, with the value transferred on the network every day just a small fraction of its trading volume. While some have looked at this data to condemn Bitcoin for being a bubble, it can also be argued that Bitcoin currently has an important role besides being a store of value or money — opening up the doors of investment to a wider audience. This has been true for concepts like initial coin offerings or initial exchange offerings, which have lowered the entry barrier for crowdfunding and equity investment.