Is Bitcoin Meant to Be Money?
Satoshi Nakamoto’s creation of Bitcoin as an alternate form of currency was meant to address the shortcomings of the traditional financial and banking system. Today, however, the debate intensifies over its actual usage and how it is viewed by society.
The Bitcoin Dilemma
According to Nakamoto's Whitepaper, Bitcoin was intended to be a digital currency, out of reach from governmental regulations, fulfilling all the roles of money: a medium of exchange, a store of value, and a unit of account.
Yet, Bitcoin's journey has morphed it into a hotbed for speculation. The initial transfer of the first 10 BTC from Satoshi to Hal Finney evolved into an intricate ecosystem featuring industrial mining operations, institutional investors, and capitalized derivatives like ETFs.
The tale of a pizza purchased for 10,000 BTC has evolved from a landmark trade story to a light-hearted anecdote among crypto novices.
Bitcoin's enduring volatility renders it a magnet for those eyeing rapid gains, steering much of the Bitcoin activity towards speculation rather than everyday usage. Bitcoin has transitioned into an investment and a value reserve akin to gold or stocks, diverging from its potential as a commonplace exchange medium like the dollar. Despite retaining certain monetary characteristics (such as transferability, divisibility, and scarcity), it predominantly serves as an investment vehicle.
Frankly, the allure of cryptocurrencies stems from their distinction from traditional money.
Could Bitcoin Serve as Real Money?
Bitcoin's potential as a medium of exchange could be unlocked if it were broadly accepted and utilized within the real economy.
However, for this digital currency to achieve such a status, it must navigate through a series of challenges:
- Education and Public Awareness. Educational initiatives and public awareness campaigns are crucial for disseminating knowledge about cryptocurrencies to the wider population. Bitcoin's acceptance by retail vendors and small online services, enabling its use for a variety of goods and services, hinges on this widespread understanding. The situation in El Salvador, where Bitcoin has been declared legal tender yet is used by less than 10% of the population due to unfamiliarity with crypto wallets and transaction processes, serves as a stark example of a well-intentioned idea falling short in practice.
- Scalability and Transaction Speed. The current capacity of the Bitcoin blockchain to process five transactions per second stands as a significant hindrance to its function as currency. Technological advancements aimed at enhancing scalability and, by extension, transaction speeds are considered essential for making Bitcoin viable for regular payments. Nevertheless, even the Lightning Network, a Layer 2 solution, is limited to servicing no more than 100 million clients daily. Its creators, Joseph Poon and Thaddeus Dryja, acknowledge that the solution is not yet capable of achieving global scalability:
If all transactions using Bitcoin were conducted inside a network of micropayment channels, to enable 7 billion people to make two channels per year with unlimited transactions inside the channel, it would require 133 MB blocks (presuming 500 bytes per transaction and 52560 blocks per year).
Currently, one BTC block is limited to 1 MB, and expecting its size to increase by more than a hundredfold is quite peculiar.
- Price Stability. For Bitcoin to act as an effective medium of exchange, its price needs to be stable. The currency's volatility undermines its utility for everyday transactions. Even if one could imagine a highly speculative project with the tools and mechanisms to stabilize the price of the first cryptocurrency, it is hard to see who would invest in such a venture. Capitalists reap enormous profits from the roller coaster of the crypto market, while small traders manage to make a modest living off exchanges. The underlying problem, however, is the inflation of fiat currencies; aspiring for dollar price stability essentially means mirroring its depreciation. Satoshi Nakamoto evidently had a unique perspective on this issue.
- Trust and Security. Perhaps, this is the only condition that has already been met. Hacking the Bitcoin blockchain is more challenging than breaking into the U.S. Federal Reserve's vault. The cost of a 51% attack would be exorbitant, leading hackers to focus their efforts on more vulnerable targets like crypto exchanges' hot wallets and third-party storage services. The associated risk is akin to that of traditional street robbery.
Overcoming these obstacles would be necessary for Bitcoin to become a widely used currency in daily life, a transformation that requires years and the development of a societal consensus around the need for these changes. The second factor—achieving public consensus—appears even more daunting than the temporal challenges.
Moreover, the narrative within the Bitcoin maximalist community framing Bitcoin as “digital gold” is gaining traction. In modern times, gold is not used to pay for everyday items, as it serves not as a payment method but as a hedge against inflation and a store of value.
Therefore, the inquiry raised in the headline might remain an exclusively philosophical one.
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