Is Bitcoin Real Money?
A digital currency called cryptocurrency, which serves as a vehicle for monetary exchange between individuals.
What is Bitcoin?
Since Bitcoin launched in 2009, the cryptocurrency world has been abuzz with its possibilities. People realized they could buy Bitcoin and use it for simplified international payments while holding funds aside from government-controlled means.
In addition to being the first virtual currency, Bitcoin (BTC) is the most well-known of the more than 19,000 digital currencies currently in use. Every new dramatic peak and sickening low is avidly covered by the financial press, establishing Bitcoin as inevitable in the marketplace.
Individuals in the US typically utilize Bitcoin as a substitute asset to equities and bonds to further broaden their portfolios such as by using bitcoin books. Microsoft, PayPal, Starbucks, Tesla, Home Depot, Twitch, and other large organizations are a few examples of those that take Bitcoin.
While that can be a good thing, many people want to know the long-term outlook for Bitcoin. If they buy Bitcoin, can they use it as real money? In this article, we’ll look at the features of money and how bitcoin measures up against them.
Understanding Bitcoin
Bitcoin is a digital currency called cryptocurrency, and it serves as a vehicle for monetary exchange between individuals. People buy Bitcoin through a peer-to-peer method, store it in wallets, and use it for payments, savings, and investments. To determine if Bitcoin is real money, we must first define money.
The International Monetary Fund (IMF) defines money as a store of value that people can exchange for goods and services. By that definition, bitcoin is real money, seeing as people can buy bitcoin to save or make purchases.
How you exchange cash for goods and services is how you can use Bitcoin to pay for things. But, similar to trading currencies for one another and profiting off exchange rate changes, there’s also money to be made or lost when you buy bitcoin and sell at a later price.
Additionally, there are services available that let you link a debit card to your cryptocurrency wallet, enabling you to use Bitcoin similarly to how you would use a credit or debit card. Also, this typically includes a financial service provider instantaneously turning your Bitcoin into dollars.
The difference between traditional money and Bitcoin is that while Bitcoin is entirely digital, your paper money is physical and controlled by the central bank. However, your transaction has nothing to do with the central bank whenever you buy bitcoin, as no one can trace it to you.
Traits of Money vs. Bitcoin
What constitutes money, and what parameters define what money is? Have you exchanged cash for money if you buy Bitcoin with your legal tender? With the table below, we’ll compare Bitcoin with those attributes and see how much Bitcoin’s utility makes its money.
| Attributes | Meaning | Cryptocurrency (Bitcoin) |
|---|---|---|
| Secure | Can’t be counterfeited | Yes |
| Non-consumable | Can only be used as an exchange or store of value | Yes |
| Durable | Does not wear away or depreciate easily | Yes |
| Recognizable | It is a recognized and accepted means of payment | Not in all cases, as not all governments or people recognize it as money |
| Divisible | Can be divided into smaller units or amounts | Yes |
| Fungible | Each unit is of the same value as the next | Yes |
| Easily transferable | Ownership can be given to someone else | Yes |
| Portability | The owner can carry it around | Yes |
| Scarce | Has a limited supply | Yes |
As history has shown, money and the frameworks that support it will tend to change. However, whether it’s cowrie shells or cryptocurrency, the needs and utilization in value, trading, and bookkeeping are exactly the same irrespective of the type or technology.
Even though cash remains the most common type of money, bitcoins and the blockchain innovation that powers them could very well be the subsequent stage in the development of money.
Benefits and Risks of Bitcoin
Whether you should buy Bitcoin or not depends on your personal preference. However, to make an informed choice, you’ll need to understand the benefits and risks of owning and using Bitcoin as a currency. Below are some advantages and disadvantages of using Bitcoin as money.
Benefits Of Using Bitcoin As A Currency
The main advantage of using Bitcoin is that whether you buy or sell it, it’s a secure method of storing value and making payments.
In addition, the only way anyone can access your Bitcoin money is if they have your wallet’s private key, but If you forget your key, that’s the end till you remember.
The only way anyone can reach your Bitcoin without your private key is if you buy Bitcoin on a centralized exchange and store it there. Then, with enough motivation and a weak security system, a skilled hacker could access the Bitcoin stored in your exchange wallet.
Another advantage to using Bitcoin is that it’s a decentralized store of value. Unlike traditional fiat currency, the government has no control over your bitcoin. Even if they ban it, they can’t stop you when you want to sell or buy Bitcoin via the peer-to-peer method.
Risks Of Using Bitcoin As A Monetary Exchange
When you buy Bitcoin, you open yourself up to several risks, including the cryptocurrency’s price volatility. Bitcoin prices have always been highly volatile, and a drastic price drop can cause a reduction in the value of the bitcoin in your possession.
If you decided to buy Bitcoin at the end of November 2021, you would have purchased one unit for about $62000. Two months later the price of Bitcoin plummeted to about $36000. It’s almost like you could buy a cup of coffee for $10 today, and by the end of the month, you’re buying a Bentley for $10.
Compared to traditional money that central banks regulate, bitcoin does not enjoy a broad reach and level of acceptance by retail vendors. When you buy Bitcoin and hold it as a currency, you can’t walk into any store and pay for items with Bitcoin the same way you can use the country’s CBN-regulated currency.
Lastly, criminals can misuse Bitcoin’s anonymity for illicit activities. For example, when a scammer or digital robber wants to move stolen funds, they can buy Bitcoin, and the money would become anonymous and untraceable to security forces.
So Should You Use Bitcoin As Money?
To use Bitcoin as a form of exchange, you’ll have to buy Bitcoin and store it in your wallet. During that storage period, bitcoin’s price volatility can kick off and either send bitcoin to the moon or into the ground.
You could respond by saying CBN-backed currencies are also volatile, and that’s true. But when it comes to maintaining its value over time, you’ll have a better chance of a positive result with the dollar than if you buy Bitcoin.
Virtual currencies could become widely used as transaction methods in the future; however, for the typical American cryptocurrency owner thinking of using Bitcoin to pay for their groceries, I do not believe the market is prepared for that just yet.
Also, consider the kind of purchases you’ll make with Bitcoin and what country citizens you’ll transact with.
For example, suppose you’re transacting with businesses from China or Algeria, where it’s illegal to buy Bitcoin and other cryptocurrencies. In that case, you might find it harder to transact with such retail companies.
Although it shares some attributes with money, not everyone will buy Bitcoin and use it as currency. Pending when world governments would legalize it as money, bitcoin is only real money to those who accept it. But whether or not Bitcoin will replace traditional currency is a question only time and technology can tell.
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