On November 28 around 8:30 P.M. EST, the value of one unit of block-chain currency forerunner Bitcoin surpassed $10000 USD. This historical landmark comes after months of stupendously high volatility, during which Bitcoin has both fallen 20% in one day and risen over 50% in the course of a week. These volatility cycles are common for Bitcoin, which, despite its status as a mainstay of the cryptocurrency market, experiences changes in value far more dramatic than a whole season of The Real Housewives of Atlanta. Since Bitcoin, like other cryptocurrencies, was originally intended to be a secure stable medium of exchange, this raises questions about the validity of Bitcoin, as well as its crypto-siblings, as a substitute for old-fashioned federally standardized greenbacks.
Ever since trade transitioned from bartering for goods to bartering for items by which said goods are valued, mankind has been searching for the most efficient vehicle for storing and exchanging wealth. First various goods, such as yams in Africa and pelts in Canada, were used as currency, then precious metals were minted into coins, then secure paper was pressed into money, and finally this money was digitized into strings of code that can travel around the planet faster than the speed of sound. Each time the switch to a new currency was made, one of the primary factors influencing the change was the ease with which the new currency could be used. It is much easier to exchange a coin for burger than a yam, and, similarly, it is even easier to simply swipe a card to pay for lunch and avoid messing about with paper at all. Economists refer to this aspect of currency as “medium of exchange.”
When Bitcoin was first created, companies and lay-people alike lauded it as the next step in the evolution of currency: its relatively newfangled block-chains encoding and P2P, or directly from party to party with no middleman, style of exchange offered immensely more security than the traditional ACH protocols currently utilized by commercial banks. And yet, as the currency skyrocketed in value, economists grew increasingly skeptical of its purpose. Was this new technology intended to be a currency or a security? If it is the former, why would someone let go of a five dollar security that would be worth a thousand dollars next year to pay for any good with fleeting value? Is the current market value going to continue to increase, or is this period simply a bubble driven by consumers’ honeymoon-phase optimism? These questions have grown increasingly relevant as Bitcoin reaches each new high. As for me, I contend that, so long as consumers are rational about their expenditures, Bitcoin is equally useful as a currency and a security despite its exponentially increasing values. More specifically, consumers looking to make a purchase should at least attempt to take into account the future value of Bitcoin whenever they choose whether to utilize its purchasing power or hold it as an investment. Like gold before it, Bitcoin is useful both as a commodity and as a store of value--and, hopefully, like gold, Bitcoin’s volatility will decrease as the currency waltzes its way into the mainstream.
Ever since trade transitioned from bartering for goods to bartering for items by which said goods are valued, mankind has been searching for the most efficient vehicle for storing and exchanging wealth. First various goods, such as yams in Africa and pelts in Canada, were used as currency, then precious metals were minted into coins, then secure paper was pressed into money, and finally this money was digitized into strings of code that can travel around the planet faster than the speed of sound. Each time the switch to a new currency was made, one of the primary factors influencing the change was the ease with which the new currency could be used. It is much easier to exchange a coin for burger than a yam, and, similarly, it is even easier to simply swipe a card to pay for lunch and avoid messing about with paper at all. Economists refer to this aspect of currency as “medium of exchange.”
When Bitcoin was first created, companies and lay-people alike lauded it as the next step in the evolution of currency: its relatively newfangled block-chains encoding and P2P, or directly from party to party with no middleman, style of exchange offered immensely more security than the traditional ACH protocols currently utilized by commercial banks. And yet, as the currency skyrocketed in value, economists grew increasingly skeptical of its purpose. Was this new technology intended to be a currency or a security? If it is the former, why would someone let go of a five dollar security that would be worth a thousand dollars next year to pay for any good with fleeting value? Is the current market value going to continue to increase, or is this period simply a bubble driven by consumers’ honeymoon-phase optimism? These questions have grown increasingly relevant as Bitcoin reaches each new high. As for me, I contend that, so long as consumers are rational about their expenditures, Bitcoin is equally useful as a currency and a security despite its exponentially increasing values. More specifically, consumers looking to make a purchase should at least attempt to take into account the future value of Bitcoin whenever they choose whether to utilize its purchasing power or hold it as an investment. Like gold before it, Bitcoin is useful both as a commodity and as a store of value--and, hopefully, like gold, Bitcoin’s volatility will decrease as the currency waltzes its way into the mainstream.
