Can Bitcoin be defined as money? What even is the concept of money?
As the mathematics philosopher Ludwig Wittgenstein said, “‘Concept’ is a vague concept,” and agreeing on a definition is just the start. Critics have argued that Bitcoin cannot be considered money, while Bitcoin evangelists claim its features make it a superior form of the money we’ve known.
The standard definition accepted by economists of money requires three properties being a medium of exchange, a store of value, and unit of account. These three properties of money (arguably) sufficiently define the Dollar, Euro, and all other currencies the world has been using, but should it define the money that changes the rules?
Medium of Exchange
The work that payment processors such as Bitpay and Coinbase have done to get tens of thousands of merchants to accept Bitcoin is astounding. When companies like Overstock.com and Expedia start accepting Bitcoin, it becomes increasingly easier to convince your neighbors to accept it.
Bitcoin is accepted all over the world, and our startup All4Btc allows people to spend bitcoins on anything they want, regardless whether your favorite shop accepts bitcoins. It can be exchanged from anywhere, to anywhere, for as little or as large of value as you want, going above and beyond what dollars can do as a medium of exchange.
Store of value
“It has to hold its purchasing power over time.” I wish I could predict the future, and I’m sure the people in Argentina, Zimbabwe, and Weimar Germany wished the same (see: Hyperinflation).
All Bitcoin needs to do to is remain at the current exchange rate or increase in value, and since past performance is our only measure, Bitcoin is young but booming.
Unit of account
“Accounting is the measurement, processing and communication of financial information.” This is where everything changes. Bitcoin illustrates that money comes down to 1s and 0s: it is information. Accounting is the practice that gives meaning to numbers, representing raw data as specific assets or liabilities, gains or losses, goods and services.
The current system of accounting means everything to our economy. Every business must maintain a record of their financial information, which is often assisted with the help of banks, accountants, and credit card companies who collect, store and process the “metadata” of accounts. Businesses then use these officially recognized records for their own accounting purposes assisting their management decisions and legal documentation.
This is a valuable service that financial institutions provide, but they harbor great power in that they also hold and control people’s money, charging premiums for their services.
A great advantage that Bitcoin has over previous monetary systems is that it takes out the middlemen. Bitcoin removes the need for banks, credit card companies, and money transfer services — as they, too, are currently defined. And the blockchain is the account that takes the burden of harboring information off the banks’ shoulders by creating a globally recognizable ledger stronger than any bank’s security. Bitcoin is its own unit of account.
Going beyond money
With the advent of Bitcoin 2.0 projects like Ethereum and Open Transactions automatically adding financial instruments/information into the elements of the “medium of exchange,” we should begin to view the property “unit of account” differently.
If the goals of these forward-thinking projects are met, it will mean that the financial information of every purchase, stored as complete contracts, can be measured, processed and communicated automatically, so that the information from both before a sale and after a sale are balanced and equally recognizable.
Therefore, the cost of assessing the transaction after the completion of the contract/sale is equal to the cost of assessing the transaction before completing said contract/sale.
A new definition of Money
The fact that many have a difficult time understanding Bitcoin as opposed to the Euro or Yuan show that people understand and visualize money in terms of exemplars such as bank notes, coins and credit cards. Which begs the question, do people truly even understand money or just the methods they interact with it?
Charles Fillmore’s Frame Semantics argues that people’s concept of money stems from their understanding of government issued coins and notes, their personal wealth and value, and its acceptance by others.
Thus, the properties and categorization of Bitcoin are not the judges of defining Bitcoin as money. Simply by growing in acceptance and usefulness for more people, the properties of Bitcoin will quickly become the properties of money.
It has not only changed the way we think about money, Bitcoin has given us a new definition of money.