Why Bitcoin is a Superior Currency to USD or Gold

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Many call digital gold bitcoin, but also say it’s a superior form of currency to the US dollar (USD). It turns out there are good reasons to back up these claims based on the six basic properties of silver.

How exactly Bitcoin (CRYPTO:BTC), the US dollar (USD), and gold stack up against each other can be debated. But I think bitcoin has made objective improvements to what makes money so useful in the world.

Image source: Getty Images.

The six properties of silver

If an inventor were to sit down and design a perfect form of money, he would try to optimize money according to six properties or dimensions. These properties are: durability, portability, divisibility, uniformity (or fungibility), limited supply and acceptability. Let’s look at these properties and how they affect the usefulness of money.

1. Sustainability

Silver should not degrade over time. Money that degrades over time (physical banknotes or tarnished metals like silver or copper) would in turn mean that the banknote or coin is worth less over time. Gold does not degrade over time making it extremely resistant to the elements and destruction and therefore an ideal metal to use for money. USD paper is obviously vulnerable to fire, tearing and tearing, although much of the USD has been digitized.

But the most durable form of money would be distributed, digital information like Bitcoin. Bitcoin is sustainable because it is a purely data-based form of currency. Bitcoin is basically a ledger system where different unique addresses have bitcoin balances. This ledger (called the blockchain) is replicated across hundreds and thousands of computers around the world to ensure its persistence. Destroying any bitcoin requires an attacker to simultaneously destroy every computer with the bitcoin blockchain stored on its hard drive, making it highly resistant to hackers or any other type of attack that could compromise its security and therefore its durability. .

2. Portability

Money should be easy to transfer from one place to another. The distance between two parties should not be a limiting factor for individuals wishing to do business with another. There should also be no permissions or restrictions to be able to transfer. Consider restrictions such as capital controls when measuring the portability of money. If you need authorization to send dollars, or if your digital dollars are blocked or seized, the portability of your money is significantly hampered.

Therefore, the best form of money can travel at the speed of light at all times. Permissionless, information-based money like bitcoin is the most portable. Some bitcoin critics might point to bitcoin’s low transaction speed (about five transactions per second, or tx/s) as evidence of its lack of portability. But an innovation known as the Lightning Network (formalized in 2015 and implemented in 2017) accelerates bitcoin’s transaction capabilities to millions of transactions per second, making bitcoin the most portable form of money.

3. Severability

The more this money can be divided into smaller parts, the more it can adapt to the different scales of commerce within a society. While the dollar can only be split into 100 coins and shaving chunks of gold is difficult and inconvenient, a single bitcoin can easily and instantly be split into 100 million coins called satoshis. This degree of divisibility gives a high degree of flexibility to any user of the money, rich or poor.

4. Uniformity (Fungibility)

It is important that each currency unit be interchangeable with the next. For example, each $1 bill is worth the same as all other $1 bills. A non-uniform money supply may be subject to coin denomination, or someone could dilute the metals that make up a coin as is the case with gold and silver-based silver. Information-based units of money like digital USD and bitcoin are verifiably the same as any other unit. This leads to easy, efficient and cheap exchange as neither party needs to spend time verifying the authenticity of the exchanged money.

Since the bitcoin ledger and the coins it contains are tamper-proof information, secured by large amounts of energy, it is immune to coin cutting, counterfeiting and overprinting silver.

5. Limited Supply

There is a debate over whether or not a limited supply of money is optimal for an economy. A student at the Keynesian school of economics may argue that the ability to print money on demand helps boost the economy in times of depression. While a student of the Austrian School of Economics may argue that the money supply should be static and free from third-party intervention, whatever the intention.

I take the side of the Austrian school, and therefore I favor the limited supply of gold, and the absolutely finite supply of bitcoin. A limited supply of money means that the value of money cannot be diluted by third parties, leading end users of money to retain more of their accumulated wealth. It also means that currency holders are likely to see their savings increase, rather than decrease in the case of an inflationary form of currency, as can be the case with the USD. With bitcoin, there is an absolute fixed supply of 21 million coins. Currently, 18.9 million coins are currently in circulation, with the remaining 2.1 million to be mined over the next 120 years. When the last bitcoin is mined, the circulating supply will have reached the cap of 21 million coins.

6. Acceptability

A good form of money should be as widely accepted as possible. Otherwise, what good is money if you can’t exchange it for food, water, shelter, or transportation?

Admittedly, bitcoin lacks its current acceptability, with gold and USD having near-universality everywhere you go on the planet. Currently, approximately 2.5% of the world’s population uses, holds or accepts bitcoin. Based on past trends in technology adoption, my guess is that once bitcoin reaches between 8-10% adoption, we could see a rapid increase in global acceptability. Given the current rate of adoption, I expect that to happen within the decade.

bitcoin becomes money

I believe bitcoin has brought improvements to money in at least five of the dimensions of money: limited supply, divisibility, durability, portability, and uniformity. To expect bitcoin to have global recognition and acceptability just 13 years after its inception is unreasonable. Instead, I prefer to look at the trend of increasing acceptability. Currently, that number stands at around 2.5% of the world’s population. This number has been steadily growing year on year with no signs of slowing down – which tells me bitcoin is becoming a legitimate form of currency.

Although bitcoin has innovated and improved five of the six dimensions, it will certainly take time before bitcoin is widely accepted as a currency globally.

This article represents the opinion of the author, who may disagree with the official recommendation position of a high-end advice service Motley Fool. Were motley! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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