“money is a matter of functions four, a medium, a measure, a standard, a store”
Alfred Milnes (1844 – 1916)
What is money? At present, by most economic standards, BTC holds up quite poorly as a form of money. It can be used as a medium of exchange, however adoption rates (double incidence of wants) are still low, and due to the volatility in BTC price relative to USD, people are apprehensive about using it to pay for goods. You may recall that the talk we had was actually on Bitcoin Pizza Day. BTC is a usable measure of value, however most frequently it operates as a pair against alternative cryptocurrencies only, not as a measure against USD or commodities, though the USD pair is likely the most frequently traded. That said, for practical purposes we must note that there are very, very few people who would walk into Starbucks in June 2018 and convert the prices from USD to “sats” or mBTC to make life easier, the same way an American expat might do with a local currency while on vacation.
As a standard, also, BTC’s properties are taking time to establish. With the USD as an international reserve BTC has a lot of work to do to challenge something of that magnitude. The changes, barring any sort of major international monetary collapse, would likely only come in inter-generational timeframes, as such trust takes a long time and significant reserves to establish. Personally, I do not see grandparents using it as a benchmark for measurement of their personal wealth in my lifetime, though if I am proven wrong on this point, it will be happily so.
As a store of value, despite the robustness of the cryptographic code and software mechanism that protects the chain, it is not acting competing well, however the timeframe on this discussion is important. The problem is not a technical one, it is a market one. If you picked the right time to buy (almost any time before 2017), then it can be said to have increased in value, but to be a store, it is only required to preserve value, relative to another known alpha, such as USD or better still, a basket of currencies. Specifically, it does not have to appreciate in USD terms. The locked in 21,000,000-coin limit, with ~17,000,000 already mined and a virtually unknown amount lost on old hard drives also means the final store value is unclear. Sadly, discussion of whether it is actually deflationary needs far more space than we have here.
So, can BTC really be a global currency? The many solutions offered by BTC and alt-coins are a promising start to a very young industry. Measurements like transactions per second (TPS), security and relative ease of use by even the lowest common denominators of society seem far fetched in 2018. The advent of off-chain solutions like Lightning Network (LN) albeit controversially resolve many scaling issues as we saw in the two videos.
Perhaps the most fundamental issue that is rarely explored, perhaps eschewed by the technical discussions; is that of trusted third parties. So far in this century we have witnessed several governments exhibit irresponsible, or simply unwise, behavior in respect of their responsibilities for monetary supply control. It is in places like Venezuela where they are seeing inflation figures passing 16,000%, that even after the BTC/USD pair dips hard, that they are still making a significant Bolivar gains in terms of spending power. When one also considers the benefits of passing wealth on to subsequent generations, in such a simple way as remembering a private key, then it puts confiscation, by taxation or other means such as inflation safely out of the reach of greedy persons.
Just a little reminder here, and I know I stressed this during the talk, but it bears repeating: NEVER share your private key. NEVER.
Other things we discussed, that we do not have time to cover fully here are: (i) The relationship between market capitalization and number of transactions, which should give you a good impression of how quickly BTC is being adopted as a cryptocurrency standard, versus “certain other pretenders to the throne”. (ii) The fact that government regulators are still unsure of how to treat BTC, is it an asset, a commodity, a security, a currency? Each respective department is vying for legislative control over the cryptodomain, which should also tell you something about how important it will become. (iii) The totally open nature of the BTC ledger that lays all accounts bare. This makes it extremely unwise to use BTC to commit fraudulent or illegal activities, though some aspects of this are subject to change with LN offering routing over TOR type networks.