Are Cryptocurrencies actually "Currencies"

A common claim against cryptocurrencies is that they are worthless, or put another way they have no value. For example lets look at Gold, it has a real world use as it is very good at conducting electricity. This makes it useful in certain electronics. But what about books? Books are valuable right? You pay far more for one then the paper it is made of is worth. Well the knowledge within the book, be it how to do something or entertainment, makes it more valuable. So what is Value if it isn't necessarily something with physical use?

Value

Value is made up of three things: Utility, Trust, and Scarcity. Both of these elements are partly subjective.

Utility indicates that a thing has a use. Utility is subjective in that some people have more use for some things then others. A lover of Sci-Fi has more use for such a book then one who hates it. A blacksmith has more use for a chunk of iron then an accountant. And we could go on. The properties of things makes them have use, but they only have utility to those that can use them.

Trust is another thing that makes up Value. Trust is very subjective and varies from person to person. It is based on an individual's experiences with something. Brands is a good example. People are willing to pay more for a specific brand then a comparable generic because there is trust in the brand. They have used it before and trust in the familiarity, they trust in the level of quality, they trust it will be available, and so on.

Finally there is Scarcity determined by the economic holy grail of Supply and Demand. Scarcity on it's own doesn't make something valuable but rather modifies the value if it already is valuable. It doesn't matter if only 10 books were printed of a horrible novel no one wants. But if you have something that has Utility or Trust, and the demand outpaces the supply then the value will increase.

Just Data

One of the common attacks on Bitcoin's values is "it's just data in a computer" and as such has no value. But does data really have no value? Data/Information/Knowledge, all basically the same thing, have value. The Information needed to turn chunks of iron into a plow is more valuable then the iron itself the process of applying the knowledge to the raw materials make them more valuable. Data is collected by many companies at great cost because it allows them to improve their processes, like targeting customers with more convincing ads. Data has value, but it does depend on what is in that data. So what about cryptocurrencies, specifically Bitcoin?

Bitcoin is a decentralized currency. That is the type of data that makes up Bitcoin. Though really Bitcoin is made of both data and systems. From the bottom up Bitcoin is designed to be a currency, so its' value, it's utility and trust is based on that of a currency. So what is the value of a currency.

Currency

Currencies have utility in and of themselves. They store wealth as an intermediate medium and facilitate trade, both of which are extremely valuable functions. The only real alternative to Currency is Barter, the process of directly trading goods and services for other goods and services. Barter is not very convenient as it forces one of two situations:

  • You need to have exactly what another person wants so you can trade for your desired product.
  • One of the parties need to be willing to accept something they don't need with the hope they can trade it to another for something they do need.

On top of that, goods are often difficult to move around either due to simple bulk/weight/etc or special requirements. Even more concerning is the fact that many goods you want to trade are perishable adding a time limit to how long you can trade it.

By using a currency as a medium between one good or service and another you can defeat most of these issues. Assuming the currency actually is better then barter. So a good currency has some requirements to make it better then barter:

  • Something that can store wealth.
  • Something that will not rot/break apart/disappear over time.
  • Something that is portable.

The first has to do Trust as disscuseed int the last section, while the second and third has to do with the form the currency takes.

Are Cryptocurrencies actually Currency

So this is the question. Bitcoin can be valuable in and of itself, if it is a good currency. Because value is based on utility and trust, and currency has utility. So we need to answer if Bitcoin Is it a good currency.

Store of Wealth

TODO

Can it Rot

TODO

Is it Portable

TODO