Bitcoin: Currency, Commodity or Castaway?
Bitcoin has been around now for several years, and still no one quite knows what to make of it. There are some who dismiss the concept of digital currency entirely, some who still believe it will be mainstream in a matter of years, and others who see it more as something to take a long-term interest in.
So who has it right?
Bitcoin is here to stay
Now would be a good time to dismiss the first line of thinking: that digital currency can simply be dismissed as unimportant, or a non-factor in society. For many, this is the case. You may not currently own digital currency or use it in your day-to-day life, and you may not have any plans to.
But Bitcoin has gained strong enough footing to convince most analysts that it’s not going to disappear. And if it’s not going away, it stands to reason that it will gain greater influence over time, even if it happens slowly.
Earlier this month Brian Armstrong, CEO of leading Bitcoin exchange Coinbase, argued that the public is a too focused on the price of Bitcoin, as opposed to its utility. Armstrong stated that what’s really important is how much of the world is using Bitcoin, and that the real usage is catching up to the hype.
Indeed, over the last few years there’s an upward trend in how many Bitcoin transactions are taking place. Currently, as many as a couple hundred thousand transactions may take place in a given day with the digital currency.
This trend supports the argument that Bitcoin is a gaining acceptance, and that you’ll probably have to begin taking it more seriously at one point or another. As to the debate over whether Bitcoin should be considered a mainstream, functional currency or a long-term investment, there’s a little bit more to it.
The new kid on the block
A few hundred thousand transactions in a day sounds great for a currency that’s still trying to gain a firm footing in the worldwide marketplace, but in the context of financial transactions in general, it’s a minuscule number. And where can you spend Bitcoin? It’s still not an option at many (probably, most) everyday locations.
Conversely, Bitcoin is already accepted at a wide array of online businesses as a form of transactional currency, including some major players like Paypal, WordPress, Overstock, and others.
It’s also true that there are numerous companies and products designed to facilitate Bitcoin payments at brick-and-mortar store locations. However, have you seen Bitcoin used at any of the stores, restaurants, or cafés you frequent in your life? The answer is likely “no” or “very infrequently.”
The question of whether Bitcoin is a functional and useful currency doesn’t have to go one way or the other entirely. The truth is, it’s certainly becoming more useful and every month there seems to be a bundle of new stores or sites accepting Bitcoin. However, we still have a long way to go before it’s anything close to what can appropriately be labeled “mainstream.”
Currency or Commodity?
And then there’s the third outlook: that Bitcoin is more of a resource or commodity to be looked at with a long-term perspective. And this, right now, appears to be the most appropriate way to gauge the cryptocurrency.
In fact, as of September of this year, Bitcoin is now classified as a commodity in the U.S., putting it in the category of gold and oil as opposed to ordinary currency. This certainly indicates that a long-term, investment-style outlook is currently more appropriate than stocking up on Bitcoin as usable currency.
Salil Deshpande, the managing director at Bain Venture Capital, addressed this idea with appropriate clarity. Deshpande gave Bitcoin its due, expressing his belief that it will gain traction over time (and essentially become more mainstream). But he also firmly agreed with the recent classification, stating that the proper way to view Bitcoin is as a commodity rather than a currency “due to its lack of price-stability.”
The truth is that Bitcoin is both a currency and a commodity. But as for how it ought to be viewed by someone eyeing its value and potential, the long-term approach is currently more appropriate.
You can use Bitcoin in your everyday life if you choose to, but its greater value is in gradual appreciation over time.
Amanda Cole is a freelance writer based out of New York City. She typically writes about topics within the fields of business, technology, and finance, and lately she’s been particularly intrigued by the developments surrounding Bitcoin. When she isn’t working on her next article pitch or doing research, Amanda enjoys running with her dog, exploring the always-amazing NYC restaurant scene, and binge-watching the latest shows in her Hulu queue.