The Purpose of Money

Money has been around for as long as human civilization. The purpose of money is to facilitate three primary functions.

Cryptocurrencies such as Bitcoin do not currently exhibit any of these qualities. It had initially been a medium of exchange when early adopters used it to trade goods and services. However it has become so volatile and expensive over time that hardly anyone is using Bitcoin to buy things. Nearly everyone who already owns Bitcoin have decided to hold onto theirs because they expect the value to continue to climb. Today Bitcoin is first and foremost considered to be some kind of investment. Nobody is buying a hotdog with Bitcoin these days. Some merchants such as Valve, who used to accept the cryptocurrency, said they will no longer be accepting Bitcoins as payment due to high fees and volatility. Money has to be a store of value, but Bitcoin can not guarantee this. If you put money, such as $100 into a bank account today it will probably be worth about $95 in 2020. Inflation would decrease the value of the U.S. dollar over the long run, but this is usually done at a slow and predictable rate. It’s the kind of value that you can rely on in advance. But Bitcoin and other cryptocurrencies have no such assurance. Bitcoin has a unit of account, but it’s not practical so everyone just converts it into USD anyway. No one denominates value in BTC. If the newest iPhone model was priced at 0.1 BTC, it could mean something different today vs tomorrow. But if the smartphone was priced at $1,000 US then everybody would better understand relate to the cost of the device.

Other common characteristics of money is that it should have intrinsic value, have low overhead/transaction costs, and easy to use. Again, Bitcoin does not do any of these things. It does not possess value in itself since there is no real world application of using it on its own. It’s terribly costly to make transactions with, and complicated for the average consumer to understand how it works.