Debate: Is Bitcoin Money or Not?

Bitcoin is money. Bitcoin is not money, it’s a fad. Bitcoin is currency, no it’s just more of a speculative instrument. We have had our subscribers poles apart. So why not have a healthy debate for constructive arguments sake?

Bitcoins are Money

All money is essentially stored energy, much like a battery. Workers exchange their own energy in the form of labor for money. That money is then traded for other goods or services, all of which require energy.

We have seen the phenomenon time over again, say seashells used by primitive coastal cultures as money, represented an investment of human energy. Thousands of people had to invest their energy in collecting the billions of exact seashells needed for a legal tender. Then came Gold which also represents a significant expenditure of energy. Consider the enormous effort spent in the mining process: removing ore from solid rock, moving this heavy ore to a processing plant, extracting and refining metals… and that’s the easy part. You have to find the gold first!

The argument is, legitimate money in all of its forms (Rupee, Naira, Shillings, etc.) is the battery and exchange of energy.

Bitcoin is also stored energy. How is that? Because Bitcoin mining process is also very energy intensive. Bitcoin is created when it is electronically earned (or “mined”) using specialized hardware, generally called “miners.”

Among the most popular digital currency miners on the market today is Bitmain’s Antminer S9 (see sample pic). This hardware solves highly complex mathematical calculations to confirm previous Bitcoin transactions. As a reward for this service, the owner of the mining hardware earns a transaction fee in the form of new Bitcoin. This is essentially how new Bitcoin is created.

Fig1. Antminer Mining Rig

Confirming previous transactions creates a “block” in the “blockchain.” The rate at which miners can create new blocks (and earn Bitcoin) is set to geometrically decrease. The result is a cap on the total amount of Bitcoin that can be produced. No more than 21 million Bitcoin can be earned. But that also means Bitcoin mining gradually becomes more and more energy intensive with every unit produced.

However, with the advent of industrial mining kicking in from China, Russia and Japan we can safely say for sure how very energy intensive the process is now which makes Bitcoin expensive to buy!

Fig2. To earn any significant ROI through Bitcoin mining, investors typically need dozens of currency miners working 24/7. There are warehouses with nothing but rows and rows of racks filled with Bitcoin miners.

Bitcoin’s current estimated annual electricity consumption is over 13,000,000 megawatts. That’s enough to power 1.2 million U.S. households. And that figure is growing.

By 2020, the annual energy consumption of the Bitcoin network is expected to exceed the total annual energy consumption of Denmark!

In addition to sharing an energy-based foundation, Bitcoin also shares all of the same characteristics of what we’ve traditionally considered money:

  • Durability: It won’t rust, erode, decompose, or naturally break down in any way
  • Portability: It’s everywhere you are connected to the internet
  • Divisibility: Units can be broken down into hundred-millionths
  • Uniformity: It’s 100% digital with no variations
  • Limited supply: Only 21 million can be produced
  • Acceptability: Nearly a quarter-million different merchants worldwide now accept Bitcoin

Bitcoin really is money, any way you slice it. And it’s not going away anytime soon.

Bitcoins are NOT money

Bitcoin is more like a tribal culture. The tribe and most of its chieftains hurl a rallying carry and most of the people blindly follow them. The tribe mostly have miners, traders and merchants who indirectly form an oligopoly to have a price control on Bitcoin (as a commodity). Bitcoin is a token on the blockchain and the price of the token is manipulated by the tribal culture. Money does not behave like that.

Leaving aside the fundamental focal points of the benefit of blockchain and how revolutionary it might seem to those who hear it for the first time, let’s admit the hardcore reality of Bitcoin which makes it difficult to be considered as money.

  • Volatility: Historically, money must be a reliable medium of exchange and a reliable store of value. Bitcoin meets neither of these definitions.

How can you transact using so-called digital money when prices fluctuate by hundreds of dollars in the space of an hour, or less? You might think you bought something for $500. But by the time the retailer processes payment, the so-called digital-currency price drops to $100. Or that you have to pay a transaction fees of $4 dollars to get a coffee worth $20!

Both buyers and sellers lose big because bitcoin is not a reliable medium of exchange with a dependable store of value. This can be largely attributed to the fact that Bitcoin is just price speculation.

The benefit money offers is its purchasing power, i.e. its price in terms of goods and services. Consequently for something to be accepted as money, it must have a pre-existing purchasing power: a price. Hence Bitcoin fails as an acceptable mediums of exchange due to its extreme volatile nature.

And quite recently, the news of China banning Initial Coin Offerings and rumours of Bitcoin ban in exchanges is further making it hard for the digital currency from a wider acceptability lens.

  • Velocity: For money to be existent in a market and to become prevalent in culture (or a counterculture) it needs to move around people quickly. It usually fosters the economy of a city, or a nation.

Most of the Bitcoin buyer are holders (or hodlers, as the tribal culture names it) and hence people are using it as a store of value like gold and hence Bitcoin (if it were to be considered money) is not exchanging hands frequently.

The preservation value of Bitcoin trumps over the intent to spend from a psychological perspective. The data from the crypto markets as an empirical evidence reflect the same wherein Ethereum transactions are more than Bitcoin’s in the last 24 hours (at the time of writing):

Fig.1: Ethereum transactions > Bitcoin transactions (, date 11/09/2017)

Before SegWit kicks in 100%, moving Bitcoins is an expensive proposition on the network due to large transaction fees which again is an incentivization structure built by the miners!

  • Inflation: Theoretically we have been told there are only 21 Million Bitcoins.

But with the recent hard fork of Bitcoin Cash we can safely observe that quantitative easing has come to the Bitcoin monetary world. Speculation further runs rife with a possible hard fork in November 2017. Just cause a few chieftains of a tribe couldn’t agree together they made more money on the chain, literally! Look at the sample exhibit where in a few years it might be impossible to determine which one was the original chain?

Aforementioned points leads us to believe that Bitcoin is not money, its just a currency among the Bitcoin tribe much like Tazos with Lays.

Now that we have seen two sides of the coin (literally), what do you think? Are bitcoins money or not? We’d love to hear back from you.

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