Does Bitcoin have the Attributes of a Good Currency?
A Good currency is usually:
- Fungible - replaceable by another identical item
- Portable - It is easy to move from one place to another
- Durable - Its quality does not deteriorate over time, which is why we do not tend to use food products as money
- Highly divisible - If you divide the money in half, each half should be worth 50% of the whole
- Secure - it is difficult to counterfeit
- Easily transactable
- Scarce - The supply is limited
- Stable - The value does not fluctuate substantially with time
In the table below, we tried to score Bitcoin and Gold based on the 9 attributes of a good currency:
Based on this table, both Gold and Bitcoin can be considered as currency.
With 20 points out of 27, Gold is doing well in most of the attributes except the attribute “Easily transactable”. Indeed, it is not very convenient to send a Gold bar to buy goods and services from another country.
With 25 points out of 27, Bitcoin is doing very well in most of the attributes except the attribute “Stable”. Indeed, the volatility of Bitcoin is very high with a price that can easily increase of decrease by more than 20% in one single day. Though many experts think that the Bitcoin volatility will decrease when the Bitcoin price and transaction volume will increase. Without a lower volatility, it will be difficult for Bitcoin to be 100% considered as a currency. Only time will tell for sure.