Money has been around for many thousands of years, dating back to early man during pre-money time when humans used systems of barter to transact with each other. A lot has changed since then, where money has evolved, and continues to evolve, as new mediums of exchange have been introduced.
What is money? In the pre-Bitcoin era, gold was considered as money, which for a long time was backing the U.S. Dollar (called the gold standard). That is, until 1933 when President Roosevelt began to suspend the gold standard except for foreign exchange. Later in 1971, President Nixon completely ended the gold standard, finally decoupling gold from the U.S. Dollar (fiat). Gold is still used as a medium of exchange, but it’s power as money has dwindled along with fiat money. After 2008, when Satoshi Nakamoto invented Bitcoin, the definition of money has changed considerably. Gold and fiat dollars are still considered money, but their medium of exchange has been devalued with the invent of Bitcoin and the blockchain, which brings a newer sound money to the world.
The traits of money The definition of money is simply a medium of exchange. However, there are several traits that make a medium of exchange money. In this chart below, we visualize the key functions of money and the differences between gold, fiat dollars, and Bitcoin. It’s important to note that in August 2017, as evolution continued, Bitcoin itself changed and evolved when a permanent fork divergence occurred leaving us with two Bitcoins: Bitcoin Cash (BCH) and Bitcoin Core (BTC). This chart includes both to help the reader understand and see how Bitcoin [Cash] to date, is the highest form of money.
Traits of Money Chart (2018), inspired by the chart created by Ryan Walker (2014)
Breaking down the traits of money. Using a sliding scale from low (worst), to moderate, to high (best), we can measure the differences between these units of money.
Fungible: This means that the unit can be interchangeable with another unit and doesn’t lose value (they are both equal to each other).
Portable: This simply means how easily the unit is able to be transported.
Durability: This means the units are not easily destroyed, for example gold is hard to destroy. Fiat dollars can wear over time, tear and disintegrate.
Divisibility: This means the unit can be broken down into smaller units. Gold can be melted and made into much smaller units, and dollars can be broken down into cents. With Bitcoin, it can also be divided into smaller units, all the way down to eight decimal places, or 0.00000001 to be exact (called a Satoshi).
Secure: The unit cannot easily be counterfeited. Gold and dollars although hard to counterfeit, can be and have been. As technology advances, it gets harder to counterfeit but with for example Bitcoin, it’s impossible to counterfeit as it uses cryptographic hash functions to make every unit unique and impossible to be duplicated (double-spent).
Easily Transactable: This refers to the ease of use or ease of exchange. For example, even though gold can be used in smaller units, it’s impossible to use gold anywhere as a payment method (you can’t walk into a store and pay with gold).
Scarcity: In order for money to maintain value, it needs to have a limited supply. Gold for example is limited, although it’s unclear exactly how much gold there is yet to be mined in the world. Dollars can be printed by central banks making it infinite which creates inflation. Bitcoin has a limited and controlled supply distribution (only 21 million will ever be created).
Self-Sovereign: Sovereign money is money issued by governments. With the invent of Bitcoin as digital money, it’s now possible to have a self-sovereign money.
Decentralized: This is the opposite of central banking, where a single entity or group controls the rules and regulations.
Smart: Money can be smart now with the invent of Bitcoin, where the traits of money can be programmed into the framework to make it the best form of money possible.
Storage: The ease of storing, retrieving, and the costs of storage. For example, gold can be expensive to store.
General Acceptance: Acceptance means that it's accepted by the general public (people, merchants) and governments as money. Since gold was decoupled from the dollar for example, it's general acceptance as money was devalued.
Stable Value: Money needs to have a stable value so when you buy goods or services, the value doesn't fluctuate drastically from one day to the next. Since Bitcoin is so new, the volatility is high making it it's price go up and down from day to day. In time, this will stabilize.
As pictured in the chart, focusing on the two Bitcoin columns, you can see that Bitcoin Cash is the highest form of money possible. Specifically there are four areas with Bitcoin Core that make it not as good money as Bitcoin Cash. BTC scored as moderate on it’s portability. Although it’s digital for transportation, it’s not the best it can be. This is largely due to the extremely high fees that have occurred in BTC which makes it difficult to transport to countries where network participants simply cannot use it as it’s not economically viable for them. If participants cannot use it as money because they are out priced, then it’s portability is adversely impacted. It's still portable, it's just not as portable as BCH. BTC scored as moderate on it’s medium of exchange because of it’s centrally planned block size. Due to it’s limited block capacity, this has introduced a slew of problems including huge transaction backlogs and high fees. This makes it completely unreliable as money and hard to transact with where merchants will no longer accept BTC because at times it can take days to process and cost tens of dollars per single transaction. BTC scored as moderate on decentralization mainly because it's development has been subverted by a group of developers all working for a single company. This is a more controversial and nuanced subject, but the bottom line is that BTC is less decentralized than it’s competing coin Bitcoin Cash which is not controlled by any one single entity at all. BTC scored as low on global adoption as it has quickly moved from a global currency to a settlement layer, negating it's overall acceptance where merchants worldwide have actually stopped accepting BTC. On the other hand, BCH has been increasing it's global adoption.
Bitcoin Cash is the best medium of exchange in the history of money As demonstrated in this article, you can see how Bitcoin Cash is the best form of money in the entire history of money to date. There are also additional reasons why Bitcoin Cash is considered money and Bitcoin Core is not, as visualized in this comparison chart which clearly outlines other key functions of the two coins.