Bitcoin - Medium of Exchange Vs Store of Value?

[Eye4Finance]

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?

[Poker Player]

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.

[avikz]

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!

[Ucy]

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

[semobo]

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?

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.

[Wexnident]

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.

[hannahB4]

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.

[The Sceptical Chymist]

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.

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.

[Eye4Finance]

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.

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

[perfect999]

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?

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.

[BrewMaster]

how an inherently deflationary/appreciating asset (like BTC or Gold) can serve as a medium of exchange

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.

[Timelord2067]

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.

[Darker45]

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.

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?

[southerngentuk]

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.

[paxmao]

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.

[Mauser]

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 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.

[aysg76]

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?

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.

[bekti3]

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.

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.

[Ucy]

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.

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

[el kaka22]

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.