Bitcoin Forum

Can somebody explain (or provide a link explaining) how an inherently deflationary/appreciating asset (like BTC or Gold) can serve as a medium of exchange versus just a store of value?

I personally doubt that Bitcoin will become a medium of exchange, especially as long as fiat currencies exist. By Gresham's law, people tend to spend the bad currency and keep the one that is a store of value. If we were to reach a hyperinflation scenario in which the main currencies collapse and disappear, then yes, it could become a medium of exchange, but as long as there are bad currencies to spend on a daily basis, I think people will tend to keep Bitcoin rather than spend it.

A little Google search will land you to hundreds of articles in this topic so I wouldn't point out to a single one. Now if you are asking from Bitcoin's perspective, it can be both.

Like fiat money, it serves as a medium of exchange as well as store of value and also as an unit for accounting. Bitcoin can also serve the same purpose. It depends on a individual how they want to use it.

Since the value of bitcoin is fluctuative in nature, a majority of its users prefer to hold it as a store of value from an speculation perspective. But when it comes to serve purposes, it can be anything. Defining a single purpose is not possible!

It can easily be both Medium of Exchange and Store of Value, esp if it's not always too volatile.  Ofcourse, It's not always too volatile, I wish you don't have those extreme dump at all. That could be used by adversary to cause panic.
You can safely prevent it from being too volatile by regulating the supply in decentralized manner, so that the price moves up and down in moderate fashion while being deflationary or overall limited in supply, serve as inflation hedge and a true/right Store of Value.
If this is done, nothing stop it from being a really good Medium of exchange

Neither Bitcoin isn't deflationary nor Gold as well, Its a known fact that Gold was used as medium of exchange for years before these paper money took over the place with the idea of being convenient and the gold will serve as a reserve fr the amount of money getting printed but nowadays nothing is followed while printing money.

While bitcoin is completely out of anyone's control, so you decide whether you want to accept it or send to anyone who is willing to accept that is better and easier to be used as medium of exchange.

Well, Bitcoin was developed as a decentralized form of currency, most people just hold it as an asset right now due to its high prices, but given time, its adoption could possibly soar, making the idea of it being a medium quite understandable, though the pre requisite here still is that the entire world basically accepts it as a payment (since it has no boundaries in its transactions). As for it being a store of value, well, it is decentralized, plus add that to it being limited in supply, it basically has enough factors to be considered as a store of value. It's high volatility could be attributed to it's adoption in the middle of development plus its maximum supply not being reached yet.

Many people have said a lot but I would love to add that for now Bitcoin is still being 90% used as a store of value more than a medium of exchange because many countries are yet to accept or adapt its use as a medium of exchange especially in the patent of goods and services.

Yeah, and right now bitcoin is the "good currency" but that doesn't mean it's always going to be so, and I don't think people are ever going to give up using fiat for everyday purchases as long as fiat exists.  And if bitcoin remains as volatile as it is, it'll remain a money maker for a lot of speculators/investors, which will make it even less of a currency than it already is.

OP, bitcoin is both of these things.  It can act as a store of value, although if you'd bought bitcoin a month ago you wouldn't have stored much value looking at today's price.  Something like gold or silver, which are less volatile, are far better in that respect.  Bitcoin can certainly be a medium of exchange--and it is; just look at how many businesses accept it as a method of payment. 

However, I think of bitcoin more as an investment, and I guess you could classify that as more toward the store of value category than the currency one.  The fact is that most people don't (and never will) use bitcoin to buy things that they could buy with fiat.

Thank you! I wasn't aware of Gresham's law but it addresses my quandary completely!

So if I get your question right, you want to ask how an asset that is technically going to grow as the demand increases and supply decreases can serve as a medium of payment? I would that's because Bitcoin doesn't just work as an asset but also solves problems when acting as a means of payment. Some of the benefits I will mention below.

1- Since there are no centralized authorities involved it saves a lot of time and resources.
2- There would never be a possibility of mismatch in transactions as it rarely but does happen in real-life payments, since the transaction is confirmed by so many blocks, there is zero chance of any discrepancy.
3- Moreover, there will never be a problem of a transaction failing as in cases you might have seen when you make transactions from your banks because you are directly making the transfer without relying on the bank.

As an asset only I don't think Bitcoin can actually survive because the only use-case bitcoin has is being used as a currency/medium of payment. Gold on the other hand is useful because it has importance in real life so even if it is not used as a means of payment, which it can't be, still remains a valuable asset.

the real question is how can it not?
bitcoin having a cap and not being inflationary means its value has the potential to stay stable. in simple terms it can potentially turn into the most stable currency ever created so that if today a cup of coffee is worth 100 satoshi it will be worth 100 satoshi 10 years from now too. meanwhile the same 100 satoshi could be worth $10 today and $10000 in 10 years because fiat is inflationary.

keep in mind that you shouldn't look at highly volatile bitcoin price that we have today because bitcoin today is too small and hasn't even been adopted for more than 2% of the world yet.

With greater awareness of bitcoin will come a more widespread ownership base and in-turn use of bitcoins as opposed to people and institutions attempting to use bitcoin as a store of wealth.  Some governments have abandoned ownership of gold as a method of wealth storage instead paying down debt to more manageable levels.

There may come a time when bitcoin is used widely yet it's "worth" may only be the equivalent of (say) ten or twenty thousand dollars.

Well, first and foremost, Bitcoin is already being in use as a medium of exchange right now when fiat is still very much in existence.

Secondly, I agree with Gresham's law. It is basic logic for anybody to first spend a $1-worthless piece of paper before spending a $1-gold coin.

However, I guess Bitcoin and fiat are not to be compared with what the law might have referred to. It is because the difference of the features between the two is enormous. Fiat is bad money. Bitcoin is good money. But what makes Bitcoin good money is not just its appreciating value but also its fundamental features as a medium of exchange.

If we only talk of buying a cup of hot chocolate and a slice of bread from a store right in front of your house, you'd readily spend your fiat rather than your Bitcoin. But what if we talk of a $50,000-cross border transaction between 2 persons who prefer to stay anonymous?

I think the role of bitcoin has all the things you mentioned, we can't just see it as a medium of exchange or a store of assets. And also depending on the different periods we see the role of bitcoin play out.

I my view, bitcoin will eventually become a mean of exchange, but for now it is not possible at large scale due to the block limitations and the variability in price. Most countries with hyperinflation have a tough time doing internal and external commerce, in the case of bitcoin is the opposite: it has got hyperdeflation, AKA price increases, thus its main use is store of value and honestly speaking, a mean of speculation in both long and short term.

It will eventually become a mean of exchange, even if only for large transactions.

I can try and tell you how I think about it and maybe it makes sense to you. So first of all, both Gold and BTC can both be divided into very small parts. With Bitcoins we have Satoshi and for Gold it can be traded in Gold bars or just in grams. This makes it very easy as an medium of exchange. For gold this exchange is usually physically and for bitcoins it is electronically online. And to have an store of value for these two the important thing is that the supply is limited and it is hard to mine new gold or bitcoins. As long as the long term effect is rising prices, it is an excellent medium to store value.

It's not that Bitcoin is only used as store of value by the people but many are still using it as payment method or medium of exchange like restaurant, companies, stores are accepting btc payment which means people are transacting through btc although the number is less at current and fiat usage is still very high.In coming times more and more people will start using btc for buying common stuff from your local store when adoption will be more and government legalize it.But at this time many people prefers to hold btc as investment tool which can provide high yields in longer period.It depends upon your priorities how you use an assest?Still a long way to go to use it a currency overall like fiat.

Simply put, placing gold as a store of value that has properties and uses unlike paper money which is easily contaminated with inflation. therefore Bitcoin comes as a pair that has a storage level like gold. only the value created is higher. because its supply is limited like gold. while fiat money has inflationary properties due to the money-printing activity it can manipulate, it can be on a large scale unlike gold and Bitcoin.

If you had a good mechanism to regularly regulate the supply, it could end up becoming a more preferred means of exchange than fiats considering it's already a good Store of Value.
Combining that with MoE would make it more attractive to people who want to benefit from both features.

I wonder what most fiats would be like without regular Supply and Price control/regulation/interventions. They would likely all have collapsed due to hyperinflation. If Bitcoin does fairly well without those things(regular interventions, regulation), imagine what it will be like if its supply is regularly regulated in public and decentralized manner without compromising on the deflationary feature which acts as a hedge against inflation that could be caused by excessive printing of fiats

Why do people think that it has to be either one of them or the other, why can't you consider it like it is definitely both of them? Think about it this way, gold coins used to be something of value but also means of exchange and people gave gold coins for items right?

It means they were something both that got more and more valuable over time, but they were also currency at the same time. Which is exactly what this situation is as well, it is not really that shocking to see that same thing could be moving now towards bitcoin as well. We can both use bitcoin as a currency because we can send it anywhere we want, it is a bit high on transaction fee these days so we use other coins, I personally favor Tron because it is nearly free, but at the same time it can be considered a store of value because when fiat is getting more and more worthless, crypto gets better and better.

Easily. People need and want to buy things. When you go to buy groceries, you don't think "I'd rather put those money into BTC". When you spend money on your hobby, you don't think "I'd rather buy some BTC".

Now, take a person who strongly believes that BTC will be the best performing asset for next decades. It would make no sense for them to hold large sums in fiat money in a bank, invest in stocks or funds. They would have most of their net worth tied in BTC. And when they would want to buy something, they'll just sell some BTC if they can't pay with it directly.

Both gold and Bitcoin can be a medium of exchange and an asset. We can consider anything as a medium of exchange if there is an agreement between the two parties to the exchange.
Bitcoin is more mobile than gold, the liquidity of bitcoin is worldwide so it is easier to become a medium of exchange.
Both gold and Bitcoin are good stores of value in terms of scarcity and limited quantity.

It actually depends on the perspective of the person viewing it. Although to answer directly, bitcoin can be both a medium of exchange and a store of value. You see, many users are using it as a mode of payment in their purchases online that they wanted to secure anonymity and of course, convenience. Bitcoin is also used to buy several items and assets, although it just has a longer processing time and higher fees, but that's another topic.

Bitcoin can also be a store of value since it has a very promising potential. It is called a safe haven for a reason. Many people are already investing in bitcoin because they have seen its positive movement in charts. Personally, I see bitcoin as a good investment vehicle because it isn't prone to hyperinflation, unlike fiat money.

So, it will really be up to you if you want to use bitcoin as a medium of exchange or as a store of value. You do what you want with it in accordance with your needs.

I used to prefer Bitcoin to be both medium of exchange and a store of value but as of now the fees are so high, I find it cost-effective to transact using any other cryptos. If there is no question of disclosing my identity to the seller or the receiver I also use Paypal but only if the fees are on the lower side. Bitcoin is accepted widely than any other cryptos and even sometimes prefered against Paypal, so obviously it is great for the transaction.
Regarding the store of value, everybody in this world has seen the uprise of BTC valuation. Obviously, it is a great option for investment or store of value.
The usage completely depends on the users, whether they want to purchase Bitcoin to transact or to hold for value increase. As of now, it is a store of value for me only.

It could be both in my opinion because it was proven to be a medium of exchange when Laszlo bought 2 Dominos Pizza for 10,000 worth of bitcoin. Store of value because even it still has it's worth even though it has been a decade already and it's much more worthy than the past.

While bitcoin was created just like any money you know and can handle and should be used as such, it is more or less still a store of value.
Presently, bitcoin is too expensive and volatile to be used as a medium of exchange. The thought of accepting some of bitcoin and then it loses value is enough to make a merchant run from it.
One major reason bitcoin is a store of value is also because of its volatility. The prospect of bitcoin increasing in value makes men use it as a store of value instead of as a medium of exchange.

Btc right now is more of a store of value than a medium of exchange, many people who are buying btc is to hold for a better price, I doubt anyone will buy btc at let say 60k just to serve as a medium of exchange purpose,  at least for now btc is more of investment, those who buy are expecting a profit, reason why the market is manipulated.

if tesla didnt stop thier connection with btc and if btc didnt crash there would have been people that are buying btc for 60k just to buy a tesla car  and there are hodlers that will use their btc to buy too but even if without tesla and even if btc crashed ,
there are still people that use thier btc regularly as a medium of exchange .
in gambling for ex. we can see people gambling with btc , also in other merchants that accept btc .

The answer is pretty simple and doesn't need any link for you to be convinced.
Bitcoin and Gold has been accepted or served as a medium of exchange simply because someone (merchant or a service lender) is willing to accept Bitcoin or Gold as a payment.
Though there are risks involved due to it's high volatility, but these people possessed a high risk tolerance.
And because of Bitcoin's high volatility, people are holding it and considered it as a store of value. I mean who doesn't want it? That's like saving in a bank with ridiculously high ROI.

Nevertheless, you can either do both. There's no need for any complex answers to your questions.
Everything that has value can be serve as medium of exchange, and everything you think It gains value as time passes by can be considered as a store of value.

This is a very useful article for OP.
It is worth noting that from the first time a person buys, sells or receives bitcoin, he can verify that:

For what makes bitcoin as the asset, the best, the most eligible and accessible to any public.
We have verified it, it is only up to us to share because we believe in bitcoin to more people.
The governments of the world are wanting to digitize their currencies because their population is preferring bitcoin and cryptocurrencies.

What of the historical precedent of gold, silver and copper coins in circulation. Having a dual use as medium exchange and store of value.

Bitcoin fulfills a similar role. With the advantage of not having to store, secure or transport physical assets on hand.

The earliest historical example of proof of work algorithms (upon which bitcoin runs) being utilized as a medium of exchange and store of value.

Could be rocks hewn into coin shapes with hand tools. Which were utilized as a medium of exchange and store of value.

https://i.imgur.com/3rA5lQ9.jpg

Bitcoin is a medium of exchange and personal wealth storage that has a relatively good return but is always accompanied by market volatility, it always goes hand in hand with fiat currencies. But I think it's a currency. Best currency and worth the investment.

I think the fees are going to be better but meanwhile we can use other crypto currencies as well, that would make things a lot easier for everyone involved. I personally believe that there is a good amount of chance we can get bitcoin fee under 1 dollar one day, it just needs to get those improvements on its blockchain, it is the one that is used the most in all of crypto so it is understandable that it is also the one that is the most expensive one, but I believe it will get better.

I also believe that we are going to move to more green friendly method as well, there are tons of crypto that is using mining and we all know how bad it is for the climate, but that will soon stop, if nothing else proof of stake will make it a lot easier as well. Let's see what will happen in the future, I believe it will go better in both ways hand in hand together.

Bitcoin has the potential to become a medium of exchange since it has monetary value in which people transact with it along the blockchain. In addition, the transaction takes place without the intervention of any third-party consensus which provide anonymity.

Bitcoin can also be regarded as a store of value given its significant value in the market. The reason on why its value is so high is because of its limited supply and the willingness of people to purchase it at its price. It can be stored for long-term investment which has provided good returns as proven by the past.

Yeah, I see all of them as a store of value and not as a medium of exchange. The thing is that there is still fiat, and I don’t really think that bitcoin is going to replace fiat as the main medium of exchange. And as for gold, I am not even going to talk about that one, because gold doesn’t stand a single chance of becoming a main medium of exchange. When it comes to transactions, a fiat transaction is usually instant, when you make a payment with debit cards and credits, and even PayPal, they are always instant. Bitcoin is not instant, although there are also cryptocurrencies that are also instant, just like Tron and so many of them.

For me bitcoin is qualify enough as medium of exchange and store of value. But you may agree or disagree with me because this is just my personal opinion. I have been using bitcoin as currency which is I use bitcoin (and other cryptocurrencies) to buy some goods and I also use cryptocurrency as investment, actually I think this is the best way to escape from world economic system which there is inflation every year that can make people who only have fixed income become poorer.

Firstly, bitcoin issuance is limited and until now deflationary, but that only happens due to the demand. Second, there is no reason why you cannot exchange goods or services with a deflationary asset. There is simply no obstacle to it for that - you pay in bitcoin and you receive something else. If there is plenty of demand the price goes up, yet that does not hinder the ability to use it.

The limitations come from the cost of transactions, the number of transactions per second and other elements of the network as it is today.

Another reason BTC is the best payment instrument today is because its value has continued to increase since its creation.  When the current fiat payment instrument that continues to be deified by economists.  And those who keep voicing that BTC is an asset that does not have an underlying asset even though it is clear that Fiat currently does not have a clear underlying asset other than a guarantee from the central bank.  Why do we trust the central bank when it is clear that inflation continues to occur and the value of money continues to decrease.  We clearly learn, how the concept of time value of money but we do not realize the great potential created in BTC.  There is no time value of money and the uniqueness of a decentralized system only exists in BTC.  That's why BTC can be a good medium of exchange and store of value.

Well that definately depends on where you are using and WHO are using it , for some people I might be beneficial to do their exchanges for Bitcoins but I do think that this actually prevents them for really big opportunities, for example:- Incase where their value hits 100%+ then what are they supposed to do ? They will definitely be sad about how they did not use this opportunity to wait and sell. You cannot use them as a medium of exchange everywhere ofc there are limited opportunities and thus makes it a lot harder to strike a deal therefore what I do think is you can just use them as a store of value for the time being. It's not only more profitable but easier too.

If you try to search the same thought of your topic in the forum, you will see that this has already been aswered quite a lot. And I am telling you, the answers you get from various members are mostly worth your time. I reckon that what you would mostly find are asnwers that are not very supportive and skeptical about bitcoin being a medium of exchange. This is because most of the people in this industry likes bitcoin the way it is now specially after experiencing the huge price pump and price crash which attracted even more people who love the idea of bitcoin being a store of value. Again, I suggest searching a bit, and I guarantee that you will have a good time reading great ideas regarding your inquiry.