Is Bitcoin a currency? Are any cryptocurrencies true currencies?
Let me ask this question from a different perspective: is fiat currency–like the ZAR or the USD or the EUR–still currency?
To be work as a currency, something has to have a number of attributes:
- Durability: ZAR’s or USD’s in your bank account do not have an expiry date nor do the ones in your wallet “go off”. But, then again, neither do Bitcoins. Hence, fiat currency is no more real than cryptocurrency in this sense.
- Portability: You can carry ZAR’s or USD’s easily and you can EFT or wire payment anywhere in the world that has a bank account. Likewise, you can carry Bitcoin on your phone, eWallet or wherever you have an app and you can transfer it to anyone else that has one anywhere else in the world that has the equivalent. Hence, fiat currency is no more real than cryptocurrency in this sense.
- Divisibility: You can take one ZAR and divide it into cents, or add many together to make billions. Likewise with USD’s. And, likewise, Bitcoins can be split into much smaller fractions of a coin or added up into lots of coins. Hence, fiat currency is no more real than cryptocurrency in this sense.
- Uniformity: One ZAR or USD looks just like the other and is worth just what the other is worth. Likewise, one Bitcoin is–ignoring arbitrage across exchanges–worth exactly the same as any other Bitcoin is worth. Hence, fiat currency is no more real than cryptocurrency in this sense.
- Limited Supply: In theory, there is a finite supply of ZAR’s and USD’s. This theory was proven wrong in Zimbabwe when endless Zim-dollars were printed, and, hence, this attribute fell away from the Zim-dollar and it became worthless as a currency. In theory, the Central Banks limit the supply of their currencies and this supports their value. The opposite of this we call inflation. There is limited supply of Bitcoins, although all these forks are creating alternate supplies and new cryptocurrencies keep being launched, but, in theory, Bitcoin’s supply is finite. Hence, fiat currency is no more real than cryptocurrency in this sense.
- Acceptability: ZAR’s and USD’s alike are used to settle debt and purchase goods and services. Bitcoin can be used in this way too. Hence, fiat currency is no more real than cryptocurrency in this sense. This ‘acceptability’ is the most important aspect of a currency and, interestingly, the single one that cannot be programmed, enforced or regulated. People either accept it or they don’t. Zimbabwe’s Central Bank was printing Zim-dollars by the sextrillions (yes, that’s a real word), but no one accepted it as a currency anymore and this made it worthless. Likewise, it does not matter what a country like Nigeria or China says its currency is worth when people on the street are trading it for USD’s at a totally different price. ‘Acceptability’ is the choice of the crowd and has always been decentralized, irrespective of technology. ‘Acceptability’ is ultimately based on faith.
And, so, I arrive at my view of things: fiat currency and cryptocurrency are equally worthless. Both fiat and crypto currencies are only really worth what we believe they are worth.
Why do I say this?
You cannot eat USD’s or drink Bitcoins. You cannot plant ZAR’s or live inside Ethereums. You cannot drive, fly or watch fiat currency nor can you wear or use cryptocurrency in any way that is non-transactional.
Any currency’s only use is to buy the things that offer us value.
Economists have a word for this and it is the oldest and truest form of currency. It is also decentralized and no one controls all of it.
This oldest and truest currency is called: utility.
For example, Zimbabwe’s specular economic collapse involving its Zim-dollars was a monetary phenomenon. While it erodes peoples wealth dramatically and destroyed huge pockets of value in that economy, many survived.
One example–now currently one of the biggest businesses and largest employers of people in Zimbabwe!–is Tongaat Hulett (TON). They survived in Zimbabwe because their product–sugar–has utility and naturally reprices itself to whatever currency regime whatever inflation rate and whatever norm is currently in practice.
In fact, utility is such an eternal concept that it was the original currency. Way back before all of this, we called it ‘bartering’ and swopped the one good/service for the other one directly. That, though, created its own transactional problems–durability, portability, and divisibility being the major ones–that necessitated the invention of currency or money to get around.
Hence, fiat money was invented.
Initially, the currency was gold-backed because people like shiny things, but then the gold was dropped. Yet, because of its convenience and simplicity, people still accepted and keep accepting this faith-based fiat currency as a currency.
And, more recently, because politicians and central bankers have stuffed up the world for decades now, people are looking towards something else as a currency. More importantly, something that these moronic people–who are all centralised!–cannot control or regulate.
Boom. And we have cryptocurrency.
But why am I not worried about this?
Well, because in the AWSM Fund--as in most equity markets everywhere–we hold companies that offer goods and services with unique and desirable utility. In the short-term forex can create volatility, but in the long-term businesses that sell desirable and necessary goods and services will simply adjust to whatever currency or medium of exchange works at that particular point in time.
It is the Central Banks, politicians, and legacy fiat money organizations–banks and bonds are at risk here–that are going to struggle, not the equity investments into utility-generating businesses.
But, never forget this, currency–fiat or crypto–is worthless. It only has the value of the utility that it can purchase. I don’t know about you, but I would rather own the source of that utility than any medium of exchange that necessitates we value it using faith.
That said, that’s just my view of things.