Bitcoin as an asset; a currency, a commodity
Bitcoin has been at the center of attention in the developed economies after rising in value from below $900 dollars to $20,000 in just one year, 2017! Yet, many still don’t trust the asset value of bitcoin, being that bitcoin has never been categorized as specific instrument in the financial world.
So the issue of bitcoin’s true identity persist in people’s mind, the need to answer whether bitcoin is a currency, a commodity or a security is pertinent, and I will provide answers to that in today’s article.
Bitcoin is a Currency.
Like I stated in earlier posts, bitcoin is a currency because it serves as a medium of exchange. People often regard currency as anything they can touch, the paper-notes or the metal coins, the underlying idea of currency goes beyond what people have in their hands. Paper-notes don’t necessarily have values within themselves but what the government and the banks say they have. Besides, in the era of cashless policy, money is moving from the idea of print on paper to the digits in an online bank vault.
Unlike common fiat currency, Bitcoin, however, does not have centralized governing authority, and to everyone’s pleasure, it is also not tied to any country or geography as fiat money usually are. The cryptocurrency is also not generated as and when required, but in fact, a complex mathematical cryptographic technique is required to unlock or ‘mine’ Bitcoin, the total units of which is limited to 21 million.
Like all other currencies we usually come across, Bitcoin can also be traded, exchanged and used to buy goods and services. The mechanism of Bitcoin transactions is purely digital in nature, and it is run via a technological ledger known as Blockchain. Therefore, in short, although not a physical paper-note carrying the seal of a central bank in one country, Bitcoin is an accepted form of digital currency that can act as an alternative to paper-notes provided the transactions are done digitally.
Bitcoin is a Security.
The whole essence of a security basically speaking is to guarantee value and a promise to pay in the future, it this sense bitcoin is a security, as its values remain and can increase or fall like stocks do. Bitcoin is also a security because it is an exchangeable and a negotiable financial tool that has a monetary value. Bitcoin can be used as stocks, such as in case of ICOs (initial coin offering; used to like when a stock is first brought to the stock market, this way businesses can sell their stocks on the bitcoin community without having to go to the Stock exchange, and it can be sold all over the world, directly!); as a bond provided the governmental bodies accept it as legal, and as an option. Bitcoin does provide a sense of ownership of an asset of a financial promise that can be used to recover a financial value in future.
So, let’s say bitcoin is not backed by a third party, but that’s the essence of bitcoins, to do away with third parties. If it is accepted in the crypto community that the value of Bitcoin will remain available, transparent and exchangeable depending on the market position of the cryptocurrency based on demand.
Bitcoin is a Commodity.
What is a commodity actually? According to Investopedia, “a commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.” Therefore, Bitcoin can be seen as a commodity in the digital sense because it is used in commerce in the Cryptoworld, and it is interchangeable with other digital and sometimes fiat currencies. Also, Bitcoin remains the same thing wherever it is mined, and therefore, it can be used as a commodity with the same properties and value anywhere on this earth.
The idea is how bitcoin is used; it can pass as any of the concepts mentioned. It can pass as a currency, a commodity, a security and as such, it is an asset. It is a store of value and can increase or decrease in value.
In the next article we will discuss about the key terms in the bitcoin world and get you ready to become an avid investor and user of bitcoin.