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Author Topic: I know Gold and Silver are money. Is Bitcoin money?  (Read 2213 times)
tarmedia
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March 24, 2014, 08:41:55 PM
 #1

BTC

I love and use bitcoin regularly.   Prior to discovering, bitcoin, I could be considered a gold/silver bug.  I'm convinced about the quality of the aforementioned metals but would like your opinion on bitcoin. 

Is it money?

For any medium of exchange to be considered money, it must possess the following qualities:

1. General Acceptability

The material of which money is made should be acceptable to all without any hesitation.

2. Portability

Money should be easily carried or transferred from one place to another.

3. Durability

Money material must last for a long time without losing its value.

4. Divisibility

Money material must be easily sub-divided to allow for the purchase of smaller units of the commodities.

5. Homogeneity

Money should be homogeneous. Its units should be identical; they should be of equal quality and physically indistinguishable.

6. Cognisability

Money should be easily recognized.

7. Stability

The value of money should remain stable and should not change for a long period of time.

8. Malleability

The money material should be capable of being melted and put to different forms. Gold, silver, copper, etc., have this quality.

The precious metals, gold and silver by and large, possess the above mentioned qualities of good money material. It is because of this reason, that these metals have been used as money for a considerably long period of time.  Government printed money, on the other hand, is not very durable(tears easily), it is not recognized outside of specific borders but might be be capable of being put to different forms(toilet paper)

Is Bitcoin money?
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March 24, 2014, 08:43:42 PM
 #2

Bitcoin lacks numbers 1 7 and 8.

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March 24, 2014, 09:12:02 PM
 #3

I don't know that malleability is really a big factor now that we are in the digital age.  I think we live in a world that deals with a lot more intangible objects than thousands of years ago when gold, silver, etc. were used as a form of money. 

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March 24, 2014, 09:23:04 PM
 #4

Bitcoin lacks numbers 1 7 and 8.



I think it fits 1, 7, and 8 as well.

1.) You use a debit card right? Plenty of people accept online payments today. I think the vast majority of people do... Bitcoin is made of the same binary data type.

7.) Stability isn't inborn to the material used in money, it's a relative factor compared with the scale of the user base. The value of gold is determined by social networking (bartering is social networking when you scale it to an economy). The stability is affected by supply; Bitcoin does have a fixed supply.

8.) Bitcoin can't be melted but it can serve other purposes; colored coins for instance just being one other purpose. The root of why number 8 is important isn't the melting of metal, rather the practical use of precious metal outside of money. Bitcoin doesn't have manufacturing use outside of money but it does meet the root requirement that the material be useful for a purpose outside of money.

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brandonr87
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March 24, 2014, 09:41:59 PM
 #5

I thought about this last night, and I think it's important everyone understands this.

You started with "I know gold and silver are money. Is bitcoin money?"

The question is, why do you KNOW gold and silver are money? What makes them have VALUE to YOU?

It can't easily be spent, you won't know how much in spendable currency you truly have until someone offers to pay that amount to you.

It cannot be easily split into smaller pieces of currency, so owning it isn't feasible for the regular person.

It cannot be spent readily, (how many grocery stores accept gold as a form of payment?)

Stability, well it's gone from very mediocre to extremely valuable due to the world economy in the past 8 years.

So you have to ask yourself, why is GOLD money?

Gold is money because we know it is limited, it has rarity, and because we say so.
Sand is NOT money because it's too plentiful, it is easily obtained by everyone.

Bitcoin, IS money because we say so, just like gold.
But it is better than gold.

Like gold, Bitcoin has rarity, except we know exactly how rare it is (the total maximum number of bitcoins.)
Like gold, it is not easily spent at a grocery store, but that can change, unlike gold, which will not be accepted by your local grocery store.
Like gold, even though you can't eat it, or make a viable shelter out of it, it has value because of it's rarity. It's a "because we say so" store of value.

Unlike gold:
You can store all of it you own in a secure location in your house.
You can spend part of the amount stored in your house, and keep it safe. (You can have it all on a USB, put some on a phone, and if your phone is stolen, your phone has a secure password and you can withdraw the bitcoins from a backup of the phone's wallet, so you don't actually lose your money.)
There is no weight to bitcoins, so you can have an unlimited amount in your possession.


Although blockchain would like to use the term, "Be your own bank", I don't agree with your usage, but it does apply to bitcoin.
My usage of "Bitcoin: Be Your Own Bank" is more like,

You can store ALL of your bitcoin in your home, and withdraw and deposit as you feel like. So the trip to the bank is as simple as taking out the USB from your safe and putting it in your laptop to send some money to a hot wallet. Then returning it to storage.

So with bitcoin, you really can BE YOUR OWN BANK!

Thanks.
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March 24, 2014, 09:53:30 PM
 #6

Bitcoin certainly isn't money according to this definition and it never will be.  It cannot melt and therefore fails 8.

However, I don't think this concept of "money" is interesting or useful.  May I introduce a related but far more relevant term: "minney".

A "minney" is anything which is used as a medium of exchange, store of value, and unit of account.  The "success" of a minney is simply a measure of the degree to which it is used for these purposes.

Bitcoin is certainly a minney (as are many of the altcoins) but is not a very successful one at present.  I believe it has the potential to be a very successful minney in the future.
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March 24, 2014, 10:03:05 PM
 #7

Bitcoin certainly isn't money according to this definition and it never will be.  It cannot melt and therefore fails 8.

However, I don't think this concept of "money" is interesting or useful.  May I introduce a related but far more relevant term: "minney".

A "minney" is anything which is used as a medium of exchange, store of value, and unit of account.  The "success" of a minney is simply a measure of the degree to which it is used for these purposes.

Bitcoin is certainly a minney (as are many of the altcoins) but is not a very successful one at present.  I believe it has the potential to be a very successful minney in the future.


Why must money melt? Ask yourself the purpose of the requirement and then ask if Bitcoin fulfills the reason behind the purpose.

Bitcoin does fit the reason behind the purpose.

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March 24, 2014, 10:11:54 PM
 #8

wait, who made up those criteria? Because according to those criteria, USD is not money. Neither is pretty much any of the fiat currencies.

When I was in the Amazon jungle, paper bills were worthless, but there were only two units of exchange: alcohol & coca leaves. If alcohol is consider money, then certainly bitcoin can be considered money.
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March 24, 2014, 10:24:01 PM
 #9

money is different than currency

people get these two mixed up

currency is like fiat, usd

money is like gold, silver

i would say bitcoin is money not currency

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March 24, 2014, 10:26:18 PM
 #10

I don't agree with most of those requirements and your interpretations of them -- especially #8.

Gold and silver doesn't meet requirement #1 so I don't know why you are even posting.

I think Bitcoin fails #1, #7 and #8, but no money is universally accepted, the necessity of #7 is a matter of opinion, and #8 is ridiculous.

I don't mind if someone doesn't consider Bitcoin as money because it is not universally accepted. At least they have a legitimate reason.

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March 24, 2014, 10:40:32 PM
 #11

Regarding 8 (Malleability) - 174,100,000,000 grams of gold have been mined. Total future BTC will "melt" into 2,100,000,000,000,000 satoshis. It's not a straight comparison (a gram of gold can obviously melt down further) but I'd suggest Bitcoin trumps gold for malleability.

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March 24, 2014, 10:53:51 PM
 #12

Why must money melt? Ask yourself the purpose of the requirement and then ask if Bitcoin fulfills the reason behind the purpose.

Bitcoin does fit the reason behind the purpose.

I reject the premise of defining "money" in terms of concepts such as "fungibility" and "transportability".  Certainly, the study of such properties is useful (indeed, such study guided satoshi in the design of Bitcoin), but they do not constitute a satisfactory definition.

Whether or not Bitcoin is money will not be established by such definitions.  Instead, time will tell us if Bitcoin is money, and if so, the definitions that claim otherwise will become obsolete.
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March 24, 2014, 11:44:16 PM
 #13

wait, who made up those criteria? Because according to those criteria, USD is not money. Neither is pretty much any of the fiat currencies.

When I was in the Amazon jungle, paper bills were worthless, but there were only two units of exchange: alcohol & coca leaves. If alcohol is consider money, then certainly bitcoin can be considered money.

Exactly my point.  USD or Fiat is not money.  They are currencies
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March 25, 2014, 12:38:33 AM
 #14

My biggest question was always how will the "unbanked" use bitcoin without a smartphone?
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March 25, 2014, 01:32:12 AM
 #15

Why must money melt? Ask yourself the purpose of the requirement and then ask if Bitcoin fulfills the reason behind the purpose.

Bitcoin does fit the reason behind the purpose.

I reject the premise of defining "money" in terms of concepts such as "fungibility" and "transportability".  Certainly, the study of such properties is useful (indeed, such study guided satoshi in the design of Bitcoin), but they do not constitute a satisfactory definition.

Whether or not Bitcoin is money will not be established by such definitions.  Instead, time will tell us if Bitcoin is money, and if so, the definitions that claim otherwise will become obsolete.


I was drawing a parallel between tangible "money" which must "melt". I broke the requirement down to the basis for why it is a requirement to "melt" and came to the conclusion that money must serve a secondary purpose besides just that of money; it must be valuable when used for an actual purpose. Gold is used in manufacturing as a secondary function and melting is an industrial process. Bitcoin can serve a multitude of additional purposes besides that of money; it can be used for legal contracts, property deeds, voting, etc... Bitcoin and gold are both useful when not being used as "money" and so Bitcoin fits the purpose behind why reason number 8 was determined to be necessary.

I agree that fungibility and transportability are benefits, and I think Bitcoin will be considered real money.

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Carlton Banks
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March 25, 2014, 02:38:47 AM
 #16


For any medium of exchange to be considered money, it must possess the following qualities:

1. General Acceptability

2. Portability

3. Durability

4. Divisibility

5. Homogeneity

6. Cognisability

7. Stability

8. Malleability


That list is not the list of fundamentals, as many people assume.

The root premise for money is: a minimum of 2 parties agree that one object (abstract or physical) can be used as a medium of exchange (maybe you might think that cryptocurrency is the first abstract currency, but it is preceded by knots in ropes, gravings on a wall, or marks in clay)


So that can go from two people who are butterfly collectors agreeing on using their shared interest (butterflys) as an exchange item, all the way up to something like gold or bitcoin. And it's all subjective, I don't care what anyone says. Whatever "objective" property one medium has that another doesn't isn't necessarily eternal. Gold could be synthesized using fusion, or made less chemically stable with a different isotope, or made less physically verifiable with tungsten, or displaced from monetary use due to it's physical properties being more highly valued for some specific industrial or commercial use. Bitcoin could have it's persistance affected by widespread EMP, draconian ban campaigns or the development of a successful attack on the SHA-2 algorithm.

State of the art technology has always been used to enable different monetary paradigms; precious metals, printing techniques and cryptocurrency are a testament to that. Cryptocurrency may well not be the last time this will happen.

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DeathAndTaxes
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March 25, 2014, 02:43:59 AM
 #17

Gold and Silver are not money at least not anymore.   They fail #1 on your list.

What % of merchants accept gold and silver as payment for goods and services.  Please compile a list.  Would that % constitute "general acceptance" to you.  The number and scope of merchants which accepts Bitcoin is incredibly small but is far larger than gold and silver.

Is Bitcoin "money"?  I don't know I guess it depends on who's definition you use (there is no universal standard) but I think based on the properties you laid out in the OP that Bitcoin is closer to the definition of money than gold and silver are TODAY.  Now 500 years ago yeah Gold and Silver were money.  Maybe in 500 years they will be money again but they aren't today.

Of the eight properties you described Bitcoin is only inferior to gold or silver on one of them (#7) and for a currency that is less than six years old that isn't too bad.  If Bitcoin continues to gain traction and the markets get deeper and more liquid I would expect that #7 will improve as well.
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March 25, 2014, 02:55:14 AM
 #18

Bitcoin is not useful as money.   Neither is gold or silver

Money needs to be elastic in order to be useful in modern economies.   As economic activity expands,  the money supply needs to expand to meet demand.   Liquidity is one important aspect of money.

Read about Modern Money Theory L. Randall Wray if you want to know more.   Money should be approached as stock and flow rather than commodity
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March 26, 2014, 04:20:05 AM
 #19

Bitcoin is not useful as money.   Neither is gold or silver

Money needs to be elastic in order to be useful in modern economies.   As economic activity expands,  the money supply needs to expand to meet demand.   Liquidity is one important aspect of money.

Read about Modern Money Theory L. Randall Wray if you want to know more.   Money should be approached as stock and flow rather than commodity

If you can divide the unit "1" infinitely, I can assure you that "1" is very liquid.

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March 26, 2014, 07:20:02 AM
 #20

You forgot the most important property - scarcity. Gazillions of crypto 'currencies' can be created at basically no cost, having identical properties and serving the same function as bitcoin. Infinite digits on a computer screen, yeah sounds a little like the USD.
Gold on the other hand is limited in supply and unique in color, shine and other physical properties.

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