This paper examines whether characteristics and functions of money can be applied to Bitcoin. By publishing the whitepaper of Bitcoin in 2008, Satoshi Nakamoto started the story of Bitcoin. It is not just a question whether Bitcoin works as promised to as "a peer-to-peer decentralized virtual currency". It is much more a question of it being accepted by people in general. The fact that various forms and definitions of money have existed throughout history, an approach to apply characteristics and functions of money to Bitcoin is needed, in order to clarify if it can be seen as an alternative form of money. However, due to the fact that sovereign states have already established rules and regulations in regard to currencies and money, the institutions will also assess how to essentially classify Bitcoin, as it is already too big to be ignored.
Table of Contents
1.0 Introduction
2.0 Money
2.1 Definition of money
2.2 Characteristics of money
2.3 Functions of money
2.4 Key takeaways
3.0 Value of money
3.1 Subjective value of money
3.2 Objective value of money
3.3 Time tested value of money
3.4 Key takeaways
4.0 Private versus government money
4.1 Government money
4.2 Private money
4.3 Key takeaways
5.0 History of money and current developments
5.1 Golden age
5.2 Paper money (representative money)
5.3 Fiat money and current system
5.4 Key takeaways
6.0 Bitcoin
6.1 Basics of Bitcoin
6.2 Functions of cryptocurrencies
6.3 Value of cryptocurrencies
7.0 Conclusions
8.0 Bibliography
Research Objectives and Topics
This thesis examines whether Bitcoin can be classified as an alternative form of money by evaluating its characteristics and functions against traditional monetary standards and historical developments.
- Application of money characteristics (durability, portability, divisibility, store of value) to Bitcoin.
- Comparative analysis of government-issued fiat currency versus private monetary alternatives.
- Influence of demographic shifts and "digital natives" on the future of money.
- Assessment of regulatory and institutional stances toward Bitcoin and cryptocurrencies.
- Investigation into Bitcoin's viability as a long-term alternative form of money.
Excerpt from the Book
1.0 Introduction
By publishing the whitepaper of Bitcoin in 2008, Satoshi Nakamoto started the story of Bitcoin which still needs to be determined (Nakamoto, 2008). It is not just a question whether Bitcoin works as promised to as “a peer-to-peer decentralized virtual currency” (Nakamoto, 2008, p.1). It is much more a question of it being accepted by people in general. The fact that various forms and definitions of money have existed throughout history, an approach to apply characteristics and functions of money to Bitcoin is needed, in order to clarify if it can be seen as an alternative form of money. However, due to the fact that sovereign states have already established rules and regulations in regards to currencies and money, the institutions will also assess how to essentially classify Bitcoin, as it is already too big to be ignored. The question is whether characteristics and functions of money can be applied to Bitcoin.
In order to show that there is a variety of different definitions of what Bitcoin is ought to be, two institutional stances on Bitcoin will be displayed. In 2013 for example the Financial Crimes Enforcement Network (FINCEN), which is a Department of the United States Treasury, classified virtual currencies (Bitcoin, etc.) like a currency, which does not have “all the attributes of a real currency”, as it is not legitimized by the government as a currency (FINCEN, 2013, p.1). Other institutions such as for example the Internal Revenue Services (IRS) in 2014 revealed guidance which treat virtual currencies for tax purposes (like e.g. Bitcoin) like property (IRS, 2014, p.2). It is therefore not really clear how institutions define Bitcoin, as one agency seems to classify it as a currency and the other like a property. This makes it even more difficult for the public to understand Bitcoin.
Summary of Chapters
1.0 Introduction: Introduces the research question regarding whether Bitcoin constitutes an alternative form of money and outlines the scope of the study.
2.0 Money: Provides a theoretical foundation by defining money, its key characteristics, and its primary economic functions.
3.0 Value of money: Explores the concept of value from subjective and objective perspectives, including the impact of generational demographics.
4.0 Private versus government money: Contrasts the nature of state-issued currency with market-driven private money and examines current institutional attitudes.
5.0 History of money and current developments: Reviews historical monetary standards, including the gold standard and the evolution toward the modern fiat system.
6.0 Bitcoin: Analyzes the fundamental architecture, features, and functionality of Bitcoin as a potential monetary instrument.
7.0 Conclusions: Synthesizes the findings to determine whether Bitcoin can be regarded as a viable alternative form of money.
Keywords
Bitcoin, Money, Cryptocurrency, Monetary Theory, Fiat Money, Central Bank Digital Currency (CBDC), Gold Standard, Digital Natives, Value, Blockchain, Decentralization, FinTech, Financial Stability, Monetary Policy, Peer-to-Peer.
Frequently Asked Questions
What is the core focus of this thesis?
The research primarily evaluates whether Bitcoin fulfills the recognized characteristics and functions of money, serving as an alternative to traditional, government-issued currencies.
Which specific areas of study are covered?
The work covers monetary theory, historical currency developments, the psychology of value, and the legal/regulatory environment surrounding cryptocurrencies.
What is the primary research goal?
The objective is to answer why Bitcoin might be classified as an alternative form of money and to identify indicators of its long-term viability.
Which methodology is employed?
The study uses qualitative research, including an analysis of academic papers, central bank commentaries, and institutional reports, alongside an assessment of search engine data trends.
What topics are discussed in the main body?
The main sections cover the definition of money, subjective versus objective value, the history of gold and fiat standards, and the specific technological mechanics of Bitcoin.
Which keywords best characterize this work?
Key terms include Bitcoin, Cryptocurrency, Fiat Money, Monetary Theory, and Distributed Ledger Technology.
How does the author treat the concept of "fungibility" in relation to Bitcoin?
The author identifies fungibility as Bitcoin's greatest weakness, noting that the permanent, public nature of the blockchain makes it difficult to ensure the interchangeability of units if they have been associated with illicit activity.
What role do Central Bank Digital Currencies (CBDCs) play in the author's argument?
CBDCs are presented as a potential reaction by established financial institutions to the rise of cryptocurrencies, highlighting a divergence between the centralized control of CBDCs and the decentralized nature of Bitcoin.
- Citar trabajo
- Tim Clarke (Autor), 2020, Is Bitcoin money? Application of characteristics and functions of money to Bitcoin, Múnich, GRIN Verlag, https://www.grin.com/document/1133820
