🇬🇧How bitcoin is effective and efficient as a currency
Archive, October 23, 2017, is BTC efficient?
To try to understand the efficiency and effectiveness of Bitcoin as currency you need to start from farther away and see if you can place the cryptocurrency in the context of the money.
With money it is commonly defined all that at a given historical moment is accepted as a means of payment : it includes the legal tender but not the out-of-tender currency (which remains, however, currency) ; it includes counterfeit currency until it is recognized as counterfeit. Bitcoin currently is money as it is historically accepted as a means of payment.
The concept of currency is not a historical concept but a social concept, and that is, it is a community that must recognize a currency (an asset) as such based on three functions that it has to perform : means of payment, unit of account and value reserve. If the reference community always has historical contextualization, and therefore the currency is always money if it is recognised as such (because it performs its functions) at a certain time and for a given shared scope, the money does not always have social recognition that it is considered money and, therefore, it may not be currency.
For example if you own gold you use it as a reserve of value but you account it with the value in fiat currency and you don’t use it to buy bread.
Now Bitcoin, as well as being considered money, can also be considered currency because it results in this for a particular transversal social community (with connotations of belonging exclusively to technology, so neither territorial, nor ideological, nor political …) : so it achieves effectiveness, purpose; efficient remains to be seen.
Efficiency as a means of payment is low : Bitcoin is used very little in expressing valuables of marketable goods and services. This for three distinct reasons:
- the first, with reference to the consumer goods then to the daily B2C: the wait for a transaction to be performed is not comparable, as a slowness, with a transaction carried out by competitors (credit cards, ATM or PayPal cards). The cause is technical, it is inherent in the original protocol, and until it is resolved it will continue to be a cause of serious inefficiency in this respect ;
- the second, with reference to industrial goods therefore from business optics B2B : the transaction velocity versus competitors (SEPA cards and SWITF to make an example) is instead huge. Bitcoin is the dream of any corporate treasurer because it quickly allows it to transfer currency to any part of the world with minimal brokerage commissions : so in this respect it is very efficient. The problem in this case resides in the high volatility. It does not allow the definition of prices in Bitcoin normally stable or to carry out without any high exchange rate risk. The young market discovers the lack of effective business tools that can be used to cover the exchange-rate risk : it is unsuitable for a treasurer to load a risk that can also come to 5–6% in the fifteen/thirty minutes needed for confirmation. The context in this case is high efficiency of the instrument and inefficiency of the market ;
- the third reason, as a result of the first two, are the C2C exchanges between people : Bitcoin is poorly used because it is not commercially known. Here, too, it is inefficient as a means of social payment.
From the point of view of the unit of account it is effective, a price and an accounting (this latter case is found in ICO) can be expressed in Bitcoin. The inefficiency issue in this case is in the number of decimals needed to express low relative values (prices): if a Bitcoin today is valued about 5,050 EURO and the cost of a packet of cigarettes is 4,60 EURO it equals 0.00091089 btc, a complicated figure to write, pronounce and account.
Finally, the perspective of the value reserve, and that is, speculative (investment and disinvestment) in the asset and against other assets. It is effective because it can be used and used for purpose and is progressively more efficient, because the market is gradually populating the dedicated tools and intermediaries that offer new solutions and solutions from other markets : in other words, the community is progressively broadening it.
In conclusion, now you can define the Bitcoin money and effective currency, believed to be such by a community of people still limited due to inefficiencies present in the asset at structural and market levels, so Work in Progress.
This post was originally published on October 23, 2017, in Italian version on www.thescanner.info .This is adaptation of a neuronal Italian/English AI translation by IBM Watson.