For many individuals, their first sense of Bitcoin is that it’s magic web cash—one thing simply ignored and definitely not well worth the time wanted to know it. Most of the individuals I discuss to about Bitcoin say that their “plan” is simply to disregard it till it goes away. As we’ll be taught all through this guide, that isn’t actually an choice. Most individuals additionally snicker when offered with their first alternative to alternate “actual cash” for bitcoin. However bitcoin is actual cash; higher cash than any of us have had in our lifetimes—and it’s so far more.
Each Bitcoin the community and bitcoin the digital token will be exhausting to outline as a result of they don’t simply exchange one factor and make it higher. Bitcoin is the brand new, higher model of gold from the bottom and the paper greenback invoice. Bitcoin can be the brand new, higher model of your financial savings account and your checking account and your bank card. Additionally it is the brand new, higher approach to ship cash internationally and to purchase a cup of espresso down the block. Bitcoin doesn’t simply exchange the exhausting asset cash and the foreign money, but additionally the fee rails, the political financial coverage, and even the central financial institution—multi function fell swoop. It’s a fully new factor.
To really perceive Bitcoin, you could perceive the factor it goals to switch: cash. What’s cash? Oddly sufficient, regardless of its centrality to virtually every little thing we do, we not often pause to contemplate the query. However we’ve got to if we actually wish to perceive what Bitcoin truly is.
In essentially the most elementary type, cash is any object that’s used for some mixture of the next functions:
1. A medium of alternate (people should buy stuff with it);
2. A unit of account (people can reliably use it to cost stuff); and
3. A retailer of worth (people should buy stuff with it later).
Over time, many various objects have been used as cash: sea shells, salt, giant stones, gold, and the $20 Federal Reserve Be aware at present in your pockets. If you happen to’re studying this guide in jail, you would possibly use cigarettes or packets of ramen as cash. I encourage you to replicate on how and why individuals naturally converge on types of cash based mostly on the time and circumstances they discover themselves in and the way know-how has all the time performed a job within the improvement of recent cash. Some issues make higher cash than others. As we’ll see, the paper cash and its digital copy you employ on daily basis is the most recent type of cash, nevertheless it isn’t one of the best—in actual fact it’s removed from the perfect.
To be thought of a great type of cash—one thing that accomplishes the three functions listed above effectively—an object should have some mixture of the next pretty intuitive properties:
1. Sturdiness (It has to final, not spoil or deteriorate);
2. Portability (You’ve got to have the ability to transfer it round);
3. Divisibility and Aggregability (You want to have the ability to purchase little issues and large issues too);
4. Fungibility (The items have to be uniform);
5. Shortage (If there’s lots of one thing, it received’t keep worth);
6. Acceptability (Individuals must need it so that you can use it); and
7. Verifiability (You don’t need lots of counterfeit cash).
You or I’ll produce other properties that we expect must be added to the record. For instance, I feel good cash must be created pretty. However that is the record that economists have used for generations. Actually, the Federal Reserve Financial institution of St. Louis lists these properties within the academics’ assets part of their web site12 and makes use of them to argue—accurately—that US {dollars} are higher cash than a cow. A cow looks like a low bar, however perhaps they solely wish to make the arguments they’ll win.
Every of those properties economists use to determine how good one thing is as cash is measured on a scale; none of them is a binary “sure” or “no.” If an object fulfills many of those properties, it will make for a great type of cash. From this record, it’s trivial to see what your instinct already tells you. Bananas would make a horrible type of cash and cash product of gold would most likely serve the aim effectively. However what concerning the $20 invoice in your pockets? What about bitcoin?
In a head-to-head competitors, the $20 invoice simply beats bitcoin in class #6: Acceptability. However acceptability can change and has many instances all through historical past, and the hole is narrowing yearly as extra institutions settle for bitcoin. It’s not too exhausting to think about that hole closing considerably over time. On a technicality, the greenback additionally has a slight edge in class #4: Fungibility. However that is solely a small distinction that most individuals wouldn’t discover, and technological strategies exist already that shut this hole fully.
As we’ll see as the remainder of this part unfolds, Bitcoin walks away with the lead over {dollars} in the entire different classes. It’s not even shut. Bitcoin will not be just a bit however much more Sturdy, Moveable, Divisible/Aggregable, Scarce, and Verifiable. These aren’t properties I cherry-picked as a result of they make Bitcoin look good. These are the previous textbook properties economists have used for “good cash” endlessly. We are able to add to this record the truth that since Bitcoin is natively digital and programmable, it looks like a greater type of cash proper now and for the long run. Neither is Bitcoin simply higher than the greenback: when evaluating Bitcoin to different types of cash (e.g., gold) it nonetheless demolishes the competitors throughout most or the entire classes. It’s merely one of the best cash that people have ever created.
Earlier than I clarify why that’s true, I wish to pause and ensure we additionally perceive what cash isn’t. You’ll discover that the properties listed above for one thing to function good cash don’t require the merchandise to have a bodily type you’ll be able to maintain in your hand. Nor do the properties counsel that one thing used as cash must have another intrinsic worth. Nor do the properties counsel that cash have to be issued by a authorities. All three of this stuff are sometimes cited as explanation why Bitcoin can’t be actual cash, but none of them actually have something to do with the precise definition of cash. These are issues individuals reference as a result of they’re essential to their expertise with cash, however they aren’t intrinsic to that have. Similar to how what has served as cash has modified over time, so too has our expertise with cash.
For instance: It isn’t mandatory for cash to have a bodily type that may be touched or held. Certainly, you’ve by no means held many of the {dollars} you’ve earned, spent, and saved within the final 20 years. They’ve simply been numbers on a display screen. Digital cash, {dollars} or in any other case, is completely practical as cash. And the identical is true of Bitcoin; simply because you’ll be able to’t contact it doesn’t imply it’s not actual both. Hopefully that is reassuring, since that is usually the very first argument provided by well-meaning people once they first begin to grapple with Bitcoin. However the easy truth is that you simply don’t want to have the ability to contact one thing for it to be a great type of cash.
Neither is it mandatory for cash to have an intrinsic worth. Actually, as a result of cash is used to speak value data from one market participant to a different, it’s higher that it not produce other use circumstances. Cash having intrinsic worth would add “noise” to the sign and make each financial choice tougher. Think about having to weigh each buy you make together with your cash towards the worth of its different makes use of. It will trigger financial exercise to grind to a halt as everybody debated whether or not to make use of the cash they’d for buying items or this different use. Some individuals don’t understand that the numbers on their screens that symbolize the {dollars} of their checking account don’t have an intrinsic worth both. Bitcoin’s lack of intrinsic worth is one other quite common argument launched towards it, when in actual fact that seems to be a worthwhile characteristic and never a bug. The truth that Bitcoin doesn’t have another intrinsic worth means it is ready to present value data for financial choices with out noise or manipulation.
Lastly, it isn’t mandatory that cash be issued by a authorities. For a lot of centuries it wasn’t. Individuals would use varied media of alternate and shops of worth with out the federal government interceding in any method. It was solely within the final couple of centuries that it made sense for governments to get into the cash sport when it was tough to belief and confirm the purity and weights of coinage. Stamping the king’s face onto a coin served a function at that time. Since then, the intertwining of presidency and cash has been so full that the majority people have a tough time imagining that cash will be one thing separate from the federal government. This misunderstanding has repeatedly been manipulated for the only good thing about the federal government that controls the issuance of cash. However regardless of our expertise, there isn’t any want for cash to be issued by the state to be legitimate. Bitcoin is one of the best hope humanity has of severing the ties between authorities and cash.
On the very least it would function a examine on how the governments discharge their duty as stewards of financial coverage.
The excellent news is that individuals perceive the seven properties of excellent cash listed above on an intuitive degree. In different phrases, individuals don’t must learn an financial textbook to acknowledge “good” cash. They simply begin gravitating towards it over time. Individuals received’t must know why Bitcoin is healthier to know that it’s higher. Our latest financial experiment with unbacked paper cash is barely 50 years previous, and paper cash owes most of its success to the privileged authorized standing paper cash enjoys by the governments that subject it. However absent coercion individuals will all the time select a greater type of cash, as proven by the truth that they did for 1000’s of years through the use of gold. Earlier than Bitcoin had been invented, Jörg Guido Hülsmann defined, in his guide The Ethics of Cash Manufacturing, that within the case of “gold and silver—and no matter else free males would possibly uncover and develop for financial providers . . . there’s a pure tendency out there to unfold the usage of essentially the most helpful monies over all the world.”13 Bitcoin is healthier cash and due to that, Bitcoin adoption could be very prone to develop and unfold for the foreseeable future.
This text is an excerpt from A Progressive’s Case for Bitcoin: New Revised Up to date Version, out there now for pre-order at a reduced value of $21 by November 15, 2025.
12 Federal Reserve Financial institution of St. Louis, “Capabilities of Cash,” Financial Lowdown Podcast, https://www.stlouisfed.org/schooling/economic-lowdown-podcast-series/episode-9-functions-of-money.
13 Jörg Guido Hülsmann, The Ethics of Cash Manufacturing (Auburn, Ala.: Ludwig von Mises Institute, 2008), 197.