What is bitcoin?
Bitcoin is a great many things to a great many people but for those of us who are a little confused: which is it, an asset or a currency?
An asset is some kind of economic resource. It can be controlled or owned and it provides the owner with value, usually financial. A house is an asset. You can sell a house and get cash in return.
A currency is a system of money, a means of exchange. You used currency to buy a latte this morning, or so you could watch the latest season of Altered Carbon on Netflix
If it’s hard to tell the difference between the two, consider this. Assets tend to have a built-in promise of increased future value. A house tends to increase in value in time and thus, is an asset. It’s not very liquid, unlike cash, and therefore can’t really be thought of as currency.
Based on those definitions Bitcoin could be both a currency and an asset. It was created to be a currency and you can certainly buy things with bitcoin. Not everyone accepts bitcoin at the moment but you can use bitcoin on major retailers like Overstock and Newegg, and even Expedia will accept your cryptocurrency in exchange for plane tickets.
It is also an asset because you can sell your bitcoin and convert it to USD (or any other currency) whenever you like. It’s more liquid than something like a house and since its inception it’s tended to rise in value so that checks that off.
Naysayers and people playing devil’s advocate will say that bitcoin can’t be considered a currency because of its volatility. This cannot be over stated – bitcoin is very volatile. As the joke goes, what’s the best way to become a millionaire? Start out as a billionaire and invest all of your money in bitcoin. Just this year alone, bitcoin has bounced around between $17,000 and $6,000 per coin.
But why can’t it be both?
It’s true; right now bitcoin isn’t really reliable as a currency. If you knew that the $5 you had today could be worth $50 in a week you wouldn’t be incentivized to spend your money. It would be the opposite in fact; you’d want to hoard your cash. However bitcoin is just a baby and it’s just going through growing pains as currency. When it eventually settles down, it will be a currency.
It’s not a clear-cut asset either, like a house or gold. Gold holds its value but it’s not easy to liquidate a position in gold like it is (comparatively) in bitcoin. Bitcoin is rising in value because it’s being adopted by more and more people. We’ll only know what it truly is when it’s done growing.