In the previous, first part, we discussed, “What is Money”. In this discussion we will compare money to Digital Currencies and whether or not they can be considered money. My short answer is that Digital Currencies are a form of money but are still forming and hopefully becoming less volatile in terms of value for transactions.
As a review for something to be considered money it has to be or have:
1: Medium of Exchange
2: Unit of Account
3: Store of Value
4: Sometimes a standard of deferred payment.
So the question is, do Digital Currencies have all of these elements, and are thus a form of money?
1: Medium of Exchange – Digital Currencies have exchanges that allow one to exchange them with other people, either in typical United States Dollars or even to transfer BlockChains from one person to another in exchange for goods or services. So Digital Currencies can be used as a Medium of Exchange.
2: Unit of Account – Digital Currencies do have a Unit of Account in that one can talk about or refer to them in whole units or parts, and convert them into other mediums of exchange. One of the more common exchanges where this is done is CoinBase.com (https://www.coinbase.com/ ) Here people can setup an account and exchange other forms of money for various Digital Currencies.
3: Store of Value – Digital Currency can store value for use immediately or for use at a time in the future.
4: Standard of Deferred Payment – Digital Currencies can be last a long time, as long as proper care is taken with the BlockChain used to store the item. The BlockChains can be stored on a computer or online with an exchange for later use.
The main ‘problem’ I see with any of the uses of Digital Currencies as money is with the large recent run up in the prices of some Digital Currencies, the value of them is very volatile. From what I am able to tell, most of the run up is due to a large number of people piling into Digital Currencies all at once, and thereby driving the price of them up overall. This is not a good thing for the long term use of Digital Currency since no one would want to pay out for anything for a currency that was going to rise a lot more in the future.
As an example of this volatility problem, the first purchase made with a digital currency was a pizza for 10,000 BitCoins back on May 22, 2010.
The First-Ever Bitcoin Purchase Was Remarkably Inglorious: http://www.slate.com/blogs/future_tense/2017/12/16/facebook_added_a_snooze_button_something_everyone_should_get_behind.html
BitBeat: Happy Bitcoin Pizza Day!
The short story is that a programmer, Laszlo Hanyecz, in Florida put out a message online offering to exchange some Bitcoins for a pizza. A while later another programmer in England saw the message. They agreed to exchange 10,000 Bitcoins for two pizzas. The programmer in Britian then used his credit card to make the purchase of the two pizzas from a Papa Johns and have then delivered. According to an account of the story the delivery person was ‘confused’ as to how and why someone in England would be arranging a delivery of pizza to someone in Florida; however this was the first know Digital Currency transaction. One part that is interesting is that at that time there was not much, if any market for using Digital Currency as money, since this is the first know transaction of Digital Currency, but both programmers apparently felt that 10,000 Bitcoins were an acceptable trade for two pizzas.
Louis J. Desy Jr.
Saturday, December 16, 2017