Bitcoin is being explored as three distinct ideas: a currency, an asset and a commodity. Because regulation takes place mostly at state level, Bitcoin has become all three things simultaneously in different parts of the world.
Is Bitcoin a currency, or is it an investment like gold? Can it be both? We explore that idea and suggest where it might be going.
There are three fundamental values to describe what money is, and what it does.
It's important to understand this as it helps define how Bitcoin is currently perceived. In places where adoption is low, it doesn’t satisfy any of the above.
In areas where adoption is high, it can tick all three of the what is money boxes. On a global scale, thanks to Bitcoin’s growth in value, it satisfies the criteria that the currency can be a Store of Value.
Bitcoin’s original purpose - as laid out in the original paper published by Satoshi Nakamoto was to be a decentralised payment method.
What Satoshi wanted was to create a medium of exchange - a way to buy and sell goods.
However, as the popularity of Bitcoin has increased, its ability to serve as a quick, free way to transfer money has become hindered. Transaction fees and the number of transactions that can be handled at once by the network has made Bitcoin seem less viable as a medium of exchange.
Read more about that in our article Bitcoin’s Limits. However, countries like Japan, Russia and Norway all accept Bitcoin is a currency.
The Lightning Network could fix many of the above issues.
Thanks to Bitcoin’s amazing performance in 2017, many came to see the currency as a place to put cash and watch it grow. Like an investment.
Many have compared it to gold. The Winkelvoss twins - those guys who invested in Facebook - described Bitcoin as Gold 2.0. However, gold as an investment is regarded as somewhere safe to put your money when currencies aren’t faring so well.
As part of Bitcoin’s design, the amount of Bitcoin available increases in number at a rate of approximately 4% per year. It’s engineered to slowly decline to zero growth around the year 2140.
Bitcoin’s diminishing growth rate and finite quantity are comparable to gold in that sense. What’s more, Bitcoin’s volatility compared to other cryptocurrencies is lower - meaning it has potential to become the gold of crypto.
One possible idea for where Bitcoin could be heading is for it to become a tradeable commodity, like oil, or metal. In America, the Commodities Futures Trading Commission designated Bitcoin as a commodity in 2015.
Read more about tax and regulation on Is Bitcoin legal?
Banks like JP Morgan are now seeing the currency as an asset class, too. But that doesn’t mean it’s a done deal for Bitcoin. Currencies are traded as commodities all over the world thanks to their relationship with the prices of certain goods.
So is Bitcoin an investment, or a currency? It’s still not quite decided yet. One thing that gets mentioned in this debate is Bitcoin’s volatility and why it makes it difficult to be seen as a currency.
If Bitcoin starts to stabilise, who knows where it might go next.