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Is Bitcoin a Currency? A Look at What This Means

Introduction

For a long time now, people have been looking at Bitcoin to see if it is a currency or a commodity. With the recent news of the SEC cracking down on one Trendon Shavers, it has raised even more questions. Through this article I would like to look at this situation and what it has brought to the table.

Judge Decides Bitcoin is a Currency

The big thing in the news right now is that the judge in the Trendon Shavers case has decided that Bitcoin is a real currency. This has been leading to some confusion, but I think the judge said it right. More or less his argument is that Bitcoin is able to be used to trade for fiat and to purchase items. Therefore it has a value. The argument against this is that Bitcoin has no “true value,” and instead is like Celebration Station tokens (a game room), where the only value it has is whatever people place on it. While this is true, there is a huge misconception here, which is that one is directly translatable to real items and the other is not. Tokens can be used for one thing: playing the games at that specific game room. While you could probably find someone to sell them to for fiat, it would be solely because they are getting a discount on the tokens. Their value would not be based on the face value.

Bitcoins Are Like Money

I think a good question that needs to be asked is “what is money?” Another good question is “how much is money worth?” Both of these are a little tricky to answer, but I will do my best.

Money is basically just an item that we have agreed (as a society) to accept in exchange for goods and services. If you look at how the Native Americans handled their trading, they did it with things like pots. Because these could be traded for other items and for services, that made the pots their form of money. While they did not necessarily have numbers associated with them and they were not printed out, the society as a whole determined that they had a certain value. This value was directly translatable in to other things.

So what brings about the value of money? Why is a dollar worth a dollar? In all reality it is not worth anything at all. Money has a perceived value because society has given it one. If society decided one day that the dollar bill was no longer going to be accepted because it was worthless, its value would instantly drop to zero. All it really is is a piece of paper (I know it's made with threads and other things, but we still consider it paper) that has a number on it. The only reason our dollar can buy a dollar item at McDonald's (ignoring the tax, of course) is because they have agreed to accept it in return for their goods.

This now leads us in to Bitcoin. Bitcoin is no different than the pots of the past (or items societies all over the world still use), nor the money we trade with one another on a daily basis. If the society decides that a Bitcoin has value, it does. If they decide it is worthless, it is. As of right now, you can easily see this by watching the prices of Bitcoin. They are fluctuating pretty much constantly, although they do have their stability. Regardless, the fluctuations themselves show that different people value their Bitcoins differently, but that they do value them regardless.

You may be wondering why any of this matters. Because the courts are still trying to decide what to do about the Bitcoins, and how to classify them. After what the judge said earlier regarding the ponzi scheme, that is setting precedent for future changes and regulation to how Bitcoin is handled. The simple fact is that while it is a decentralized currency, it is a currency nonetheless. As long as some people continue to give it value (in that they are willing to trade fiat for it directly or buy and sell items for it) it will remain a currency. But I do not think this is a bad thing.

Why Bitcoins Are Great

Bitcoins are an awesome addition to our currency market because they allow a decentralized method of determining value. Right now, value of any fiat is based on the government's view as to how much it should be worth. For example, if the government mandated that every company has to pay their employees twice as much, fiat would drop in value by half because people would be earning twice as much. Now that one dollar item costs two dollars.

I feel the need to go ahead and disclaim that I am in no way against government centralization of currency. I think that it is the most efficient way to handle our fiat right now, because it would be too hard to regulate it ourselves. After all, we still have tons of people without Internet or that do not keep up with the news. As a result, they would have no way of knowing when the value of money has changed, other than when they happen to run in to someone else who keeps up with that information.

Bitcoins, on the other hand, open the door to everyone who is part of the community (which is growing at a pretty fast rate!). Unlike cash, Bitcoins can be regulated by the community as a whole because anyone who deals with them already has access to all of the important information. If a large group of the population decides tomorrow that Bitcoins are worth $200 each, they will go up in value. Because they are truly worth more? No. Because people are offering to pay more, and therefore their perceived value increases accordingly.

We Still Need Fiat

The simple fact is that while I support Bitcoin and other crypto currencies and what they bring to the table, we can not make them work without the use of fiat as well. While we are growing in the size of the community that takes part in and uses these currencies, the vast majority do not and we can never expect them to. As a direct example of this, look at how many people still do not have basic computer skills (note: this is not an attack on those people, I know many smart people that do not like computers for one reason or another and therefore refuse to get caught up with the technology). Because of this, and how technologically minded Bitcoins are, we can expect that at most a small fraction of the world's population will ever be taking part in the scene. This can still amount to a great deal of people and a ton of finances being transferred through Bitcoins and other currencies, but the truth is that fiat will always be here.

I think the need for fiat goes a bit further than even getting everyone to adopt virtual currencies as being the norm. What happens when there is no power or reception? Now you can not make purchases because people can not confirm the transactions. There are “rolling brown outs” all the time in different places, not to mention major storms, earthquakes and volcanoes. Each of these things would set people back and disable them from being able to make any purchases, because there would be no means to verify the transactions. As a direct example of why this is an issue, consider a movie rental place. A few years ago I had gone to Blockbuster to rent a movie (before Netflix was the big kid on the block). When I got there, their power was out for some reason; only theirs, nobody else's. They still allowed people to rent movies, but under two conditions: you could only use cash (they used a calculator to determine the costs) and they had to mark all of the rentals down on paper to input in to the computer once their power was restored. Imagine this being Bitcoin. Their only choice would be to accept your transaction and hope that it was not a double spend. This is just not going to work, and would put you in a place where you can not even buy anything. While this may not be a big issue if there is just one or two places without power or that are having computer failures, what happens if it is the entire city going through these problems? This is a big thing to think about, because it would impact a lot of lives.

Notice that when I talked about power outages, I left out the computer malfunctions. When we move from a physical to a digital age, where everything is handled by computers, there are going to be some problems. From hackers to unforeseen events, you can simply not prepare for absolutely everything. Even major corporations that run their own massive computer networks with billions of dollars still get hit by hackers and bugs. If they are still experiencing these problems even with their big teams of professionals, what is to make people think that the individuals would not be hit? Or even worse, the banks you may be holding your Bitcoins in in the future. With the banks we have today, there is one large problem with hacking them: you have to withdraw the money somehow, and that requires an ID or other traceable method. This means you are going to get caught at some point (in the majority of cases). With Bitcoins, you can move the money with nobody knowing where you are, who you are or anything about you. The only thing anyone knows is your Bitcoin address, which in the grand scheme of things means nothing. You could steal millions of dollars and go around spending it, and nobody would be able to trace it because it is all anonymous.

My goal with all of this is not to instill fear or anything, but rather to help open the eyes of those who do not understand the effects the digital market creates for our economy and lives. We are already seeing these negative things happen with people losing their wallets, accidentally deleting them or their computer crashing, people hacking sites and stealing the entire wallet's funds and even running ponzi schemes. If the Bitcoins were our only source of holding and utilizing currency, we would be in a state where nobody knows from one day to the next how much money they will have, nor whether or not they are going to lose it all due to some error or hacker somewhere. When we are already dealing with these situations right now, it is pretty clear that there is a lot of work to do in order to secure ourselves for the future. And if those who are more computer literate are having problems, imagine how the computer illiterate people would be getting by. This is a big reason why mass adoption is simply not feasible, and is why fiat will always be here to stay.

Conclusion

Bitcoins and other crypto currencies are a wonderful addition to our economy and the new age of technology. While a lot of people are still trying to argue that they are not a form of money or currency, they really are. As long as they can be directly traded for fiat and other items, they will remain a currency. But this is not a bad thing. In fact, it is great that there is finally a currency where we, as a collective group, can determine the value. I think that there is a lot of room for the crypto scene to grow, but attempting to avoid classification of being a currency is the wrong direction. Instead, we should embrace what has been started, where it is going and help push it further. While it will not ever go through a widespread adoption due to the technical side of it, I have no doubts that it will grow to a big enough size that its benefits will be fully realized by the community. As this happens, we can all be happy knowing that we pushed to make something great even greater, and made a relatively unique idea successful!

Bitcoin


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