Is Bitcoin a Real Currency?

A true currency serves as a medium of exchange, a repository of value, and a unit of account, yet bitcoin mainly falls short of these requirements. Only a small number of businesses have started accepting bitcoin, with an average number of transactions per day at 273,997 at the time of writing. Bitcoin price fluctuates rapidly in a short period, imposing significant short-term risk to users.

Consumer product pricing in bitcoin sometimes includes many decimal places with leading zeros, which concerns participants in the retail sector. Bitcoin does not serve as a denominator for consumer credit, is not connected to a banking institution that offers deposit insurance, and is subject to everyday hacking and theft concerns or loan agreements. In comparison to other currencies, Bitcoin seems to operate more like a speculative investment.

Let us dive in and look into details of why bitcoin is not yet considered a real currency:

Bitcoins Weaknesses as a Currency

A successful currency often serves as a store of value, an accounting unit, and a medium of trade. All three of these requirements are difficult for Bitcoin to fulfill. This article will analyze how bitcoin deviates from the traditional characteristics of a currency.

● Unit of Account

When comparing the costs of various retail items, customers must treat a currency as a numeraire to serve as a unit of account. For instance, it is easy to understand that a cup of coffee that costs $8.00 at one café is twice as expensive as a cup that costs $4.00 at another café down the street.

For Bitcoin to be a meaningful unit of account, it must overcome several challenges. Its tremendous volatility is one concern. Retailers who take bitcoin must regularly recalculate bitcoin price since its value relative to other currencies fluctuates considerably daily. This is both expensive for the store and confusing for the customer.

The variety of "current market values" for bitcoin that may be found at any moment is a related issue. At the time of writing, the cryptocurrency bitcoin price was trading at $21,716.20.This pricing was slightly different on other sites that provide similar services. Due to the simplicity of arbitrage, it is impossible that these conditions would continue in a sophisticated currency market, given the discrepancy in market prices. Any third-party seller or customer trying to create a reliable reference point for determining consumer prices has a challenge due to the ambiguous market value of one bitcoin. As a result, many websites now rely on cumbersome price aggregations, including the average bitcoin price across many exchanges over the last 24 hours. Still, these aggregates may not accurately reflect the current cost to businesses and customers to buy or sell bitcoins.

The comparatively high cost of one bitcoin compared to most common goods and services is perhaps the most significant barrier to bitcoin being commonly used as a unit of account. Unfortunately, this barrier is frequently disregarded by bitcoin advocates. Due to this, retailers must give bitcoin price with four or more decimal places for most items. Even though the mathematics is simple, consumers may find these decimal points confusing.

On the other hand, consumer prices are seldom expressed in any currency other than these units, and many commonly used accounting software programs can only handle two decimal places when expressing a good's price.

Bitcoin supporters frequently discount the currency's inability to provide prices consistent with common consumer benchmarks. However, the consensus among sources is that current computational data arrays allow for the division of bitcoins into eight decimal places, offering the possibility of a sufficiently large number of units.

● Store of Value

A currency serves as a store of value when the owner acquires it at one point and swaps it for goods and services later in his choosing without losing its economic value.

For most of history, treating money as a store of value meant keeping it safe from theft by either physically burying it or storing it in a bank. Since bitcoins have no physical form, there is no way to conceal them beneath mattresses or anywhere else. Instead, bitcoins must be kept in "digital wallets," computerized accounts.

Securing these wallets has been a big challenge for the bitcoin business. Several digital wallet providers have agreements with outside insurers to offer an essential kind of deposit protection. However, the client is forced to pay the expense of assessing the security of the wallet business and the insurance provider, even if this technique may work in theory.

Consumers who successfully keep and safeguard their bitcoins also need to manage the risk associated with the currency's volatility.

● Medium of Exchange

Since bitcoin has no inherent value, its value ultimately depends on how valuable it is as a medium of exchange in the market economy. Newspapers, accounts of people who survive only on bitcoin purchases, or estimates of the number of companies ready to take bitcoin are the main anecdotal evidence for bitcoin's influence on daily commerce.

Approximately 15,174 businesses accept bitcoin payments around the world. Computer software and hardware firms selling items specifically targeted at bitcoin applications, as well as markets or exchanges offering investment services to bitcoin speculators, make up the majority of the ranks of the top merchants accepting bitcoins.

Data from the global record of bitcoin price transactions may be used to provide insight into the adoption of bitcoin. For example, data from several sources indicate that the daily volume of bitcoin transactions peaked at over 249,610.0 as of 1st August. However, it is generally acknowledged that most of these deals involve transfers between speculative investors and that only a small portion of them are used to purchase products and services. The difficulty of getting bitcoins is one barrier to bitcoin being a commonly utilized means of trade. A user must purchase bitcoins from internet exchanges or dealers and then figure out a means to keep them safe unless they are successful bitcoin miners (a profession presently dominated by supercomputers and requiring enormous financial expenditures). In addition, current bitcoin exchanges frequently feature wide bid-ask spreads, poor liquidity, and some execution and custody risk.

The daily value of bitcoin must increase in stability to consistently act as a store of value and a unit of account in commercial marketplaces. Only then will it be able to transcend the realm of curiosity and establish itself as a legitimate currency.