Bitcoin as a medium of exchange: Difference between revisions
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* '''Good uptime'''. Works 24 hours a day, 365 days per year. | * '''Good uptime'''. Works 24 hours a day, 365 days per year. | ||
* '''Push system'''. Other internet mediums of exchange like credit cards are 'pull systems', where the receiver is given the sender's credentials and then they pull money into their account. (hopefully the correct amount!) | * '''Push system'''. Other internet mediums of exchange like credit cards are 'pull systems', where the receiver is given the sender's credentials and then they pull money into their account. (hopefully the correct amount!) | ||
* '''Programmable'''. A web server can understand or create transactions automatically, for example to release escrow or automatically provide a good or service. Smart [[contracts]] can be written with the knowledge that they will be followed no matter what. | * '''Programmable'''. A web server can understand or create transactions automatically, for example to release escrow or automatically provide a good or service. Smart [[contracts]] can be written with the knowledge that they will be followed no matter what. This allows bitcoin to do things which other media of exchange cannot, such as [[multisignature]]. | ||
* '''Fast'''. Transactions are broadcast through the peer-to-peer network in seconds and can become irreversible within an hour. | * '''Fast'''. Transactions are broadcast through the peer-to-peer network in seconds and can become irreversible within an hour. | ||
* '''Low fee'''. [[Transaction fees]] can vary between a few cents and a few dollars depending on network demand and how much priority you wish to assign to the transaction. This property is traded off with being fast. | * '''Low fee'''. [[Transaction fees]] can vary between a few cents and a few dollars depending on network demand and how much priority you wish to assign to the transaction. This property is traded off with being fast. | ||
Revision as of 18:39, 26 July 2017
Bitcoin as a money-like good
Bitcoin is designed to have many of the desirable properties of a money-like good[1]. It is: portable, durable, divisible, recognizable, fungible, scarce, hard to counterfeit.
These properties may not be exact, but in practice all of them are true. Bitcoins are divisible down to 0.00000001 bitcoin but sending amounts below 0.000002 btc (0.0002 USD) via a blockchain transaction is usually not practical. Wallet software recognizes every bitcoin the same as every other, so it's fungible, but bad privacy practices could in theory destroy this property if they become widespread. Some people use lightweight wallets which would accept counterfeit bitcoins as payment. Despite this bitcoin can function as a money-like good in practice today.
Bitcoin is also reasonably widely accepted, it can be almost bought and sold almost anywhere in the world especially in the developed world with a variety of methods. See the guide on buying and selling bitcoins.
Bitcoin's value can be volatile, there is little mechanism for encouraging stability or avoiding bubbles, although supply is pre-determined. This usually leads to commerce being denominated in USD or another more stable currency and only settled in bitcoin. Similar to how in certain less-stable countries dollars or euros are used and settlement happens in the local currency.
Bitcoin as a low-trust medium of exchange
Bitcoin also has these properties above and beyond the required ones for money. Almost all of them come from the low requirement for trust of bitcoin which separate it from almost any other medium of exchange. See Principles_of_Bitcoin#Low_trust.
- Censorship resistant. Nobody can block or seize a transfer of any amount.
- Permissionless. No arbitrary gatekeepers can stop someone using it. The bitcoin software can be installed by anybody and used to send/receive.
- Un-freezable. Nobody can freeze your accounts.
- Irreversible. Once a transaction is settled nobody can undo it, like cash. (but consumer protection is still possible.)
- ID-less. Does not require ID or registration to use. So can be used by privacy-conscious people, minors, computers, unbanked people, third-world residents, stateless people, etc
- Worldwide/borderless. Works anywhere where the internet does.
- Anonymous. Does not reveal any ID to your counterparty, requires care see Anonymity.
- Accountable. Publishing your public keys reveals all your transactions, anybody with those keys can see all your transfers on the blockchain record of all bitcoin transactions. (this may be useful for a charity, revealing to an auditor, as proof of reserves for a custodian)
- Good uptime. Works 24 hours a day, 365 days per year.
- Push system. Other internet mediums of exchange like credit cards are 'pull systems', where the receiver is given the sender's credentials and then they pull money into their account. (hopefully the correct amount!)
- Programmable. A web server can understand or create transactions automatically, for example to release escrow or automatically provide a good or service. Smart contracts can be written with the knowledge that they will be followed no matter what. This allows bitcoin to do things which other media of exchange cannot, such as multisignature.
- Fast. Transactions are broadcast through the peer-to-peer network in seconds and can become irreversible within an hour.
- Low fee. Transaction fees can vary between a few cents and a few dollars depending on network demand and how much priority you wish to assign to the transaction. This property is traded off with being fast.
The fast and low fee properties are not fundamental to bitcoin's blockchain transactions. They could be made better with technology that hasn't been created yet (see Lightning Network), bitcoin's fundamental value is the low requirement for trust and the censorship-resistance, irreversible transactions and permissionlessness that come with that.