Is Bitcoin money?

Recently I explained the three functions of “money”.

One way to think about the issue is in terms of the functions of money. Money has three functions:

  • Medium of exchange – here money breaks down the double coincidence of wants.
  • Store of value – money can be stored and used at a future date.
  • Unit of account – money provides a measure of value.

As a store of value money must have a predictable future value – preferably the same value as it has now. Ideally money will have a stable value over time. So that $100 today buys a bundle of goods and services worth $100 and can still do so in one year, or two years and so on.

The Economist is arguing that Bitcoin only meets one of those three functions:

Bitcoin does best as a medium of exchange, thanks to its clever technical design.

But …

Volatile values could prevent Bitcoin from ever establishing itself as a medium of account. Even the few retailers who accept Bitcoin use other currencies as their principal accounting unit. Prices are given in a prominent currency (US dollars, for instance) and the Bitcoin price fluctuates automatically with changes in the crypto-money’s exchange rate. Similarly, most Bitcoin owners work in jobs with wages paid in traditional currencies. So long as Bitcoin buyers and sellers “think” in euros or dollars it will fall short of money status.

Bitcoin, in other words, is an elaborate form of barter. Nothing wrong with that, but it isn’t money.

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29 Responses to Is Bitcoin money?

  1. JC

    Bitcoin, in other words, is an elaborate form of barter. Nothing wrong with that, but it isn’t money.

    Yep, when the local cafe accepts it in exchange for a latte in the morning I’ll start to think it’s money. Until then it’s bullshit.

  2. Yes, very much a ‘not yet’.

    Actually, there was an article I read recently that went into some of the lesser known properties of bit coin, in that it can be coded to transfer or perform some function under a conditional series of steps. There’s a bit of thought gone into it, even if it is not money as such.

  3. Demosthenes

    There are many cryptocurrencies now. Megacoin, dogecoin, litecoin, namecoin, RonPaulCoin (I’m not kidding), mastercoin…

    Modern techno-yoof being what they are, some are parodies of the concept and still attain ‘major’ or ‘minor’ status.

  4. 2dogs

    On the other hand, if a multi-security crypto platform comes in to replace BitCoin, it may replace money entirely. People will simply hold a portfolio of micro-securities in their e-wallet.

    JC’s e-wallet will know he buys a morning latte, and will already have an electronic coffee voucher redeemable at his local cafe by the time he rolls up – having exchanged other securities for it by automatic trading shortly beforehand.

  5. JC


    Will, when, if….

    Look, this is easy.. When I dude serving me the coffee in the morning takes Bitcoin then when it’s money. Until then its play money. I’d love to short it, but I’m afraid there are too many idiots in the world who want to buy in.

  6. candy

    The 28 year old USA Bitcon lady CEO suicided last month as the company imploded.

    They trade in money for the drug dealers apparently as we know from Aliice. it’s a bad scene, I think.

  7. JohnA

    Soooo, how does Bitcoin as a medium of exchange compare with older media, such as cheques and other negotiable instruments?

    In fact, if we are talking about money in the abstract, how do the older negotiables stack up against the supplied definition of money?

    We have:

    ” Medium of exchange – here money breaks down the double coincidence of wants.
    Store of value – money can be stored and used at a future date.
    Unit of account – money provides a measure of value.”

    Seems they manage on the first two out of the three, but might lose on the divisibility aspect. Negotiable instruments can be prepared for any value imaginable (even zero), and from that point (as singletons) forfeit fungibility. In fact, they re-introduce a form of double coincidence: of values rather than wants.

    And we haven’t looked at M2, M3 etc., as measured by Central Banks, have we?

  8. Squirrel

    That it gets the attention it does is probably a sign of the times – but that’s about it.

  9. A H

    It will take time for bitcoin to be accepted widely as a medium of exchange. I don’t see why this would surprise anyone. More and more businesses are accepting payment in bitcoin and this will result in more price stability over time.

    What about the Australian dollar? The value is not fixed, inflation is unpredictable and depends on arbitrary government decisions. The drop in 2008 in the four months from July to November was more than 30%.

    Don’t Australian businesses still need to convert into USD? Importers and exporters? So is the AUD a real currency? The main reason it is in use is because 1) it’s ‘legal’ tender and 2) the ATO requires payment in AUD.

  10. JohnA

    A H #1230595, posted on March 19, 2014 at 7:09 am

    “Don’t Australian businesses still need to convert into USD? Importers and exporters? So is the AUD a real currency? The main reason it is in use is because 1) it’s ‘legal’ tender and 2) the ATO requires payment in AUD.”

    1) and 2) should be synonymous, ie. the definition of legal tender should be “what (or ‘that which’) the government requires for payment of our tax bill.”

  11. Joe Goodacre

    How do you separate out the inflence of taxes in determining whether ‘an elaborate form of barter’ is not money.

    Dollars flucctuate substanitally in value as well – are they used to measure and store value though because the government will only accept dollars for the payment of taxes, and taxes make up approximately half the value of transactions.

  12. Alfonso

    When gold is priced in bitcoin, they’ll have something.

  13. AP

    it’ got about as much value as tulip bulbs.

  14. Helen

    When I travel overseas, I buy that country’s money and use it. When I travel to internet country, I can use bit coin. It matters not what coin I am paid in.

    When we first traded, it was chicken ex for grain ex and so forth. Items had an agreed value on the day. Similar to today, except the unit of value is some kind of coin which used to be based on gold somehow but is no longer. I guess because I am a farmer and culturally closer to the barter thing in that quite often we still barter, I see bitcoin as money.

  15. .

    It’s money. It is accepted as payment and you can buy gold with it.

    It might fluctuate wildly, but I sure as hell know fiat money isn’t a store of value.

  16. Bill

    Is a Bitcoin worth more, or less, than a Carbon Credit?

  17. The problem with measuring any asset against those 3 metrics is they are not specific enough.

    For example do we consider short term vs long term when it comes to store of value function? Fiat is particularly poor over the long term as a store of value, but short term is predictable. Gold on the other hand has shown to be much better as a long term store of value (over decades, centuries even against some measures), but a poor short term store of value (I wouldn’t want to be someone who bought Gold in early 2013 with intention to ‘spend’ it mid year!). Bitcoin probably doesn’t have a long enough timeline to judge whether it will be a store of value (over long term), but it’s volatility makes it a poor short term store of value.

    I have seen Bitcoin used as a unit of account (as I have Gold), but not commonly so.

    Who is any individual to judge whether Bitcoin is money or not? I think if people choose to use Bitcoin as money, then it has served as money for their purposes.

    Joe above raises an interesting point though: “How do you separate out the influence of taxes in determining whether ‘an elaborate form of barter’ is not money.”

    If we considered taxes as a critical determination in whether an asset is money or not (i.e. not money, unless it’s treated as such legally), then in Australia, only the Australian Dollar is money as we don’t legally have competing currencies, despite recent remarks of the RBA’s Glenn Stevens:

  18. Simon

    You can use these same criterion to describe half of the worlds failed and failing currencies, the Zambian Kwacha for example is not accepted in most countries of the world including a number of Zambian businesses who will only accept western dollars. I am reasonably certain all modern token currencies gave up their “store of value” when they became worth less than the price of the materials they are made from or just became a government secured cheque in the case of notes. The fact that floating exchange rates exist is testimony to how short lived “value” is.

  19. Simon

    In brief you seem to be saying that Bitcoin isn’t a currency merely because its not created by a government. Trading tokens have been used time and again throughout history and have always had the same validity as currency albeit in the short term. Money is an elaborate form of barter.

  20. Jessie

    In regard to the tulip bulb mania analogy (AP at 7.59) and Bill (9.54) the UN-REDD scheme and its global offshoots is a hawala-type transfer of similar mania and misrepresentation? A Black economy? An economy that while legislatively protected because due regard for [UN] cultural sensitivities or [UN] anti-discrimination restrictions it can neither be discussed publicly or transparently measured by the usual means.

    James Delingpole comments on a successful case against false arguments from the alternate colour economiesChevron vs Big Green: Capitalism Finally Grows a Pair

    Few corporate entities pump quite so much money into environmental causes as the Big Oil companies – Shell sponsored the Guardian’s environment pages; BP invested heavily in renewables as part of its Beyond Petroleum rebranding under the card-carrying greenie CEO Lord Browne – because for years they have been running scared of the green movement, because they’re big enough to wear the additional costs of green regulation and because it suits them to “greenwash” their image.

    WICEEDO. Bill, you could ask the people in links, noting that the Chicago Carbon Exchange involved in trading emissions of carbon dioxide + 5 other gases crashed in late 2010
    And Helen, while noting you may not qualify as a traditional owner but are a farmer there are carbon trading economies and regulations that impact on your productivity. Aus Dept of Environment The Carbon Farmers Initiative, US National Farmers Union’s Credit Carbon Credit Program and the Aboriginal Carbon Fund for eg.

  21. Jessie


    Aboriginal Carbon Fund

    For years the critics of wasteful indigenous-specific programs have been somewhat lonely. The voices have been drowned out by the increasingly popular calls for more indigenous-specific funds and more self-determination.

    $35 billion to turn on Indigenous lightbulb.
    Sadly the author manages to divide the discussion of funding to remote vs urban, with the discussion only of remote. The entire subterranean economy based on race and its various arguments is still currently situated within the Australian geography and economy.

  22. Bill


    I’d suspect you may be a few Bits short of a Coin?

  23. There is an alternative interpretation of Bitcoins based on the money as memory literature.

    Money is a record keeping device for imperfect and sometimes dishonest memories of past exchanges.

    People use money in exchange because of limited record keeping, or limited memory. Money helps us to keep track of past actions.

    The standard explanations (medium of exchange, unit of account, and store of value) from the textbooks are explanations that do not capture why money is necessary to achieve good outcomes in a society. They describe what money does.

    Imagine a world without money, but with a perfect record of all past transactions. (Perhaps there is a giant spreadsheet which lists everyone’s name, and every event that ever happened to them.)

    In this world, we can accomplish anything that we could have with money using elaborate chains of gifts. Families and small clubs do this.

    Suppose I go to the bookstore and ask for a book. The bookseller checks my past transactions.

    If I’ve given sufficiently more gifts than I’ve received in the past, then he gives me a textbook.

    why is he willing to do so?

    Because in the future, when he goes to the grocery store, the grocer is willing to give the bookseller more bananas than if the bookseller had not given me the book.

    Why is the grocer willing to do so? Because he is rewarded by being able to receive more gifts in the future elsewhere, etc, etc.

    Money is an elaborate chain of gifts.

    When I give the bookseller a fifty dollar bill in exchange for a book, he receives nothing of intrinsic value.

    All he receives is a token that indicates to others that he gave up something worth $50 that he has made a gift and so has kept up his part in the gift-giving chain that is a monetary economy.

    Bitcoins serve this function of keeping records of exchanges for future reference

    HT: Narayana Kocherlakota at

  24. Jessie

    A few bits short of a coin con?

  25. Helen

    Jesse, I am too busy at the end of the year lighting the hell out of the country and creating carbon in order to effectively manage my renewable resource of grass. Not interested in cool season burning woodifying the country side to get a few fake sheckles from some fake green organisation that will eventually destroy my biodiversity and thus productivity. LOL.

  26. mundi

    Bit coin will never be used like Aud is because of technical reasons that most people have no clue at all about.

    The first reason is that every transaction must be transmitted to everyone, people are already running out of bandwidth. Not to mention that downloading the entire transaction history to confirm a bit coin is already becoming a near impossible task – I believe it us up to 40gb already.

    Secondly it takes a significant time to be sure a bit coin transaction has occurred – many minutes. This time will only increase, making bit coin useless for most everyday transactions.

    The biggest reason it will fail is that bit coins require energy consumption to keep thier value. as the reward for mining goes down, the asking reward rate to confirm a transaction goes up. eventually the reward will be so small people will stop contributing CPU power, leaving the currency open to attack from a large CPU cluster (theoretically bit coins are not 100% secure unless >50% of all CPUs on the planet are ‘mining’ – that it bit coin only works in the assumption that no group of colluders will have more CPU power than any other group. This won’t be true for much longer. The energy requirement will cause CPU usage to level out. Only ridiculous growth levels have stopped this happening so far.

  27. Mundi

    All bitcoin is massively over played as a currency. It is still a huge infant.

    In the entire world there are only about 50,000 bitcoin transactions per day.

    Its used by almost no one.

  28. southernman

    Quite a number of frightening & ignorant responses here to what is probably the most successful experiment in sound money in modern times. Have I stumbled onto the Greens forums by mistake?

    As usual we see a new technology being judged by what it looks like today, rather than its potential for transformation once it has been developed. It reminds me a lot of the “Please tell me why I need an email address when paper is fine,” and “e-books are dead, no-one wants to read a novel on a screen” comments of the mid-late 1990s.

    When gold is priced in bitcoin, they’ll have something.

    When I dude serving me the coffee in the morning takes Bitcoin then when it’s money. Until then its play money.

    There are several places in most major cities around the world where you can buy meals and drinks with bitcoin, my local cafe included. Perhaps Australia is a little behind the times.

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