Are Bitcoins money? It’s a tricky question that everyone in the freedom movement has to ask themselves. There are plenty of debates across the net as we speak, trying to determine this pertinent fact, and I believe both sides have merit. The problem though, is we all keep trying to pigeonhole Bitcoins into two specific categories. You either think it’s money or it’s not. Neither side of the debate will ever reach a consensus for the simple fact that they haven’t bothered to consider that there is a third choice. That perhaps, Bitcoin is a form of value completely unique in the human experience, and has no traditional category.
To gain a true understanding of Bitcoins, we need to delve into the 6 defining factors of money. Durability, portability, divisibility, uniformity, scarcity, and acceptability. We need to see how these aspects stack up with Bitcoin. Once you see Bitcoins through the lens of these categories, what emerges is a very special form of value that excells and fails as money in different ways. This makes it difficult to pin down the true definition of Bitcoin.
Durability is a good example. Bitcoin appears to have high marks in this regard. Since Bitcoins are made of information, they can be traded an infinite number of times without breaking down. You could trade the same Bitcoin over and over until the sun blows up without it ever losing integrity. All you need to do is look at a rusty old coin to see this doesn’t apply to hard currency. On the other hand Bitcoins can disappear in a flash. If you send them to the wrong address you’re liable to lose them forever. Storing them offline can be treacherous as well if you’re computer crashes, something that can happen to the best of machines. The same doesn’t apply to hard currency. Traditional money is quite a bit more resilient to human folly.
How about portability? Since it’s digital you would assume that Bitcoins would be the most portable currency in history. Right now you could probably fit the entire Bitcoin blockchain on a single hard drive. That may not be the case in the future though. Part of Bitcoin’s protocol is that it needs to record every transaction that every Bitcoin has been in. As time goes on the Bitcoin blockchain is going to take up more and more computing space. Perhaps there’s a technical solution to this in the future, but time will tell.
Where Bitcoins prove to be far superior is divisibility and uniformity. It’s no contest. Bitcoins can be divided all the way into the millionth decimal. There’s probably never been a currency more divisible. Same with uniformity. Given the digital nature of Bitcoins, all units are precise. If Bitcoins were a physical item, each unit would be clones down to the atom.
As for scarcity, Bitcoin’s dual nature shows its face once again. Bitcoin has the most finite supply of any currency. The number of Bitcoins will never increase past a certain point. The fact that Bitcoins can be lost through computer crashes and missing passwords, means they will become scarcer over time. On the other hand, this wont stop anyone else from starting their own digital currency, a la Litecoin or Peercoin. Anyone can make their own digital currency with whatever limits they chose. Hopefully the marketplace will weed out inflationary currencies like Dogecoin.
Of course these other crypto-currencies run into acceptability, in which Bitcoins dominate the market. Every day more and more businesses are accepting Bitcoins, and there is already a long list of normal products and services you can buy with your coins. So Bitcoins are obviously valuable, but this is where they truly enter uncharted territory.
They are valuable without being backed by anything. While its value seems somewhat uniform across different Bitcoin websites, if you ever try buying the coins person to person, you’ll find the price can be subjective. This makes Bitcoins kind of like barter, but its amazing properties of divisibility and uniformity keep it out of that camp. So what are Bitcoins? They’re not backed by anything like gold, but they can’t be inflated like fiat.
I would argue that alas, Bitcoins are not currency, but they are definitely worth your money. When you buy Bitcoins you are not exchanging one currency for another. You’re buying a product. A product that provides a lifeboat from the government’s monopoly on money. A way to store value away from the prying eyes of authority. Who could forget that Bitcoin first gained notoriety for it’s use on the Silk Road, allowing users to buy illicit substances that the nannies and drug warriors don’t want them to have. Or how the U.S. Government effectively banned online gambling in April of 2011, only to have Bitcoin poker quickly fill the void. I have no doubt that in the future, whatever the government tries to ban us from using, Bitcoins and other digital currencies are going to allow us to access those products and services anonymously. Even if the government succeeds in banning Bitcoin, it would end with a hundred new crypto-currencies taking its place (as stated before, hopefully the market stays free and weeds out the garbage currencies).
It’s great that Bitcoin is expanding into perfectly legal services like Overstock.com. It’s awesome that now you can buy sandwiches, pizza, and beer at some locations, and it’s wonderful how many websites let you donate with Bitcoins. This legitimises Bitcoin in a big way, and covers up its vice ridden history. But never forget what truly makes Bitcoin valuable. Even if you don’t buy drugs and gamble your paycheck away, there’s no telling what peaceful activity you take for granted right now, that could be made illegal in the future. When that day comes, you can expect Bitcoin to fill the void, and give you the freedom to buy and sell as you did before.