It’s sometimes hard to frame conversations around cryptocurrencies like Bitcoin and Ether. That’s largely down to the fact that no one can truly express what these things are, and what they mean to humans and our society. These are entirely new organisms that lack precedence. But finding the right definitions are going to be important because it will ultimately decide if and/or how governments will regulate these things. Is Bitcoin money? Is Bitcoin a network or a protocol? Is Bitcoin a community? It’s none of the above and all of them at the same time.
What is money?
Money is often defined by four functions
- A medium of exchange
- A unit of account
- A standard
- A store of value
I’m not going to go into details of the basics of economics. But perhaps what sometimes is not well understood is what “unit of account” means. It basically means that money should be a common denomination, or measure, of value of some good.
Bitcoin is not money
Bitcoin is certainly a medium of exchange, a unit of account as well as a standard protocol. It therefore implements the three first functions of money. And although many people claim (I have as well) that Bitcoin is a store of value, it doesn’t fit with the traditional economical definition of store of value. The value of Bitcoin might appreciate over time, but that goes against the traditional definition of store of value in economics. The value is unpredictable or unstable and fits perhaps better with the definition of an investment, or something more generic like a digital asset.
Bitcoin is therefore not money.
Bitcoin is free speech
Back in 1995 the US government had restrictions on the export of encryption software, such as GPG, outside its borders. Using GPG outside the US was therefore considered illegal. But it turned out that this was unconstitutional when in court the authors of GPG printed the GPG source code in plain text on plain paper and defended it as freedom of speech under the first amendment.
Bitcoin is plain text. Its source code can be primed in text on paper. And when using it, plain text messages are sent between users.
But Bitcoin is also more than free speech.
Bitcoin is not what you think
I must admit that even though I bought my first Bitcoins back in early 2013, been around the crypto community for many years, and having contributed to Ethereum in various ways, I still don’t fully understand what these things are. And I think many of the core developers themselves would agree.
Some of the potential of Bitcoin and Ethereum are well known. We know some use cases and problems that can be solved. But we are lacking definitions to accurately describe what these things really are.
I was inspired by this way of thinking when reading Senate Bill S.1241: A Threat to America, by the hacker Beautyon.