Bitcoin

 

 

Reading Time: < 05 Min

 

Why Bitcoin Is Already The Hardest Money In Existence

Is Bitcoin already the hardest money in existence? I think so. Read this blog to find out why!

Thanks to a trial and error period over the centuries, there is a global consensus on what constitutes “sound money”. In this blog, I will provide a brief and concise explanation as to why Bitcoin is already the hardest money in existence.

What is “Sound Money”?

For something to be considered money, it needs to be three things: a unit of account, a medium of exchange, and a store of value. Further, to perform these functions effectively, there are certain characteristics it must possess. These characteristics are durability, portability, divisibility, uniformity, scarcity, and acceptability. Moreover, civilisation has been acquiring different forms of money over the centuries ranging from seashells and wheat to beads and gold. Ultimately, one form of money becomes replaced when a new one fulfills the role of the 6 characteristics better, as explained in a previous blog called “Evolution of Money & the Digital Era”. A form of money that is close to offering all six properties in the most efficient way possible is therefore considered to be sound money. Finally, I will demonstrate my reasonings for believing Bitcoin is the soundest money in existence.

Bitcoin is…

Firstly, it is important to identify why Bitcoin excels in each of the six characteristics. However, it is apt to evaluate Bitcoin by comparing it to two other forms of money: Gold (considered the hardest money over the centuries) and Fiat (today’s form of money).

Durable

One of the three aspects of money mentioned above was a store of value. It would be frustrating, to say the least, if your hard-earned money rotted or deconstructed by the time you had a chance to spend or save it. Therefore, durability is extremely important as a form of money.

Bitcoin is digital code and as a result, is not physical. Whilst it is hard for people to wrap their heads around a store of value that isn’t tangible, it is in fact the most desirable. Unlike Fiat money, you cannot destroy Bitcoin by ripping it up, dropping it, or soaking it. For that reason, Bitcoin is far more durable than today’s money. Gold, however, is malleable and virtually indestructible. This was a key reason why the world was under a Gold Standard for centuries because of its ability to withstand physical inertia.

Portable

Sound money needs to be moved across the world, especially in today’s global economy, effortlessly and efficiently.

Once again, because of Bitcoin’s digital nature, its transportability is done on the blockchain instead of physical movement. Additionally, not only can the Bitcoin network send and receive Bitcoin anywhere in the world, but it can also be done almost instantaneously and for little cost. Compare this to gold and the contrast is stark. Moving gold is a cumbersome and expensive process. Fiat money, on the other hand, is mostly contactless and therefore is relatively easy in portability. However, the transportation process is pretty slow, for example transferring large amounts of money across the world can take weeks to process, and relies on the approval of third-party intermediaries. Bitcoin is a peer-to-peer payment system which makes its portable capabilities even stronger.

Divisible

How can the money be a useful unit of account if it cannot be broken down into smaller transactions?

There is 21 million Bitcoin that will ever be in existence, but there are 100 million Satoshis in a single Bitcoin. Therefore, each Bitcoin is divisible up to 0.00000001. Consequently, Bitcoin is extremely divisible and thanks to the Lightning Network, it makes small transactions in Satoshis feasible. When compared to gold, it’s similar to comparing night and day. Gold is heavy, robust, and difficult to smelt, which would make it an expensive hassle if it was to become a global form of money again. Fiat is easily divisible and due to its paper form, various denominations of money can be done relatively easily, albeit at an environmental cost.

Uniform

Uniformity or “fungibility” refers to the money’s ability to be easily verifiable in all forms of denominations.

Bitcoin cannot be verified visually since it is not physical, however, it can be verified through the blockchain. Additionally, thousands of Bitcoin nodes exist that have a copy of the Bitcoin network and continuously validate transactions and blocks. One of Bitcoin’s criticisms in comparison to gold and Fiat is that it struggles with immediate verification. But, in reality, this is also an issue for both Gold and Fiat as counterfeit bars and paper notes exist.

Scarce

If there is a finite amount of something, it becomes desirable because people know there is less of it around. Seashells were once a form of money until travellers discovered other beaches with thousands of seashells, and thus instantly debased its value. In summary, sound money cannot be devalued that easily.

The scarcity of Bitcoin is arguably its strongest characteristic due to its programmable fixed supply of 21 million. Due to its decentralised nature, there is no possible way for any nefarious or greedy intervention to increase the supply. Unfortunately, this has been a recurring issue since the world left the Gold standard. Since then, money printing has led to considerable debasing of currencies due to its infinite supply capitalisation. Gold is considered scarce because it has been hard to come by over the centuries. However, as technology improves, gold mining capabilities expand, which can result in more gold being discovered. If this was to happen, gold would be no different from the example of seashells highlighted earlier.

Accepted

Sound money must be acceptable.

Bitcoin does not discriminate and is permissionless. This means that anyone in the world can transact in Bitcoin so long as they have a phone and internet connection. Unlike Fiat money and gold, you do not need permission from a central authority, bank, or government to own or transfer it. China and other authoritarian countries try to ban Bitcoin but only end up making it a more desirable form of money to own due to its unconfiscatability, which in turn further exemplifies its use case.

Summary

To sum up, in just 13 years Bitcoin has already become a medium of exchange, a unit of account, and a store of value. Most significantly, as a decentralised, open-source technology, Bitcoin’s core principles can remain whilst also finding new ways of improving and bettering itself as a form of sound money. Bitcoin is arguably the first time the world has truly witnessed sound money. 

If you found this blog interesting and would like to learn more, check out one of our other related blogs: Global Bitcoin Adoption: The Power of Game Theory

Feel free to share this blog with your social networks!

Share on facebook
Share on twitter
Share on linkedin

Leave a Reply

Your email address will not be published. Required fields are marked *