More than 10 million bitcoin (BTC) could be bought for the current price of one bitcoin ($7,300) a decade ago. Since its first ever recorded price, bitcoin’s growth over the next 10 years has been remarkable. With a market cap of more than $130 billion, bitcoin has shown 720,000,000% price surge since its inception. On the other hand, gold witnessed a mere 64 times increase in price over a century, with price being $19.95/oz in 1919.
In this short span of time, bitcoin has managed to acquire a status that wasn’t previously easily achieved by gold. The decentralized digital currency has experienced speedy progress in the four stages of evolution of money. In contrast, fiat and gold took a long period of time to advance through the stages.
Collectible, store of value, medium of exchange and unit of account, are the four stages that need to be qualified by entities before they can be declared equivalent to money. The journey of stages has evolved many assets of today’s world. As per Stanely Jevons, a well-known economist, gold had gone through the same path to end up as a measure of value. He explained:
Historically speaking … gold seems to have served, firstly, as a commodity valuable for ornamental purposes; secondly, as stored wealth; thirdly, as a medium of exchange; and, lastly, as a measure of value.
A collectible is an item that has a worth far more than it used to have due to its demand or rarity. Shells, beads and gold, all were once a collectible before they attained a different form of money. On the other hand, the store of value is an asset that doesn’t undergo depreciation and maintains its value. A collectible transforms its status when it is sufficiently demanded by people. With an increase in demand, a good starts exhibiting traits of a suitable store of value and experiences a rise in its purchasing power. Items such as gold and other metals make a good store of value but perishable items such as milk are incapable of following criterion to be a store of value.
Anything representing a standard of value, items used to express or measure the value of other items, and perceived as an acceptable mode of payment to both buyer and seller during a trade qualifies to be a medium of exchange. At this stage, the value of the good stabilizes. Unit of account is an important function of money. Any asset used as a monetary unit to other economic entity such as assets and liabilities is accounted as a unit of account. This stage precedes medium of exchange stage because only after an asset is widely used as a store of value, it can be used to price other goods.
Bitcoin started out as a collectible in 2009 and later an exchange was set up where bitcoin could be traded for U.S. dollars. This shows that bitcoin along with its uncontrollable decentralized nature leapfrogged the evolutionary stages whereas gold took thousands of year to surpass the collectible and medium of exchange stages before gold coins were regarded as a unit of account.
Besides price, the performance and growth of bitcoin have been outperforming others in many other aspects as well. Today, there is a mass of people, organizations and governments who are keen on adopting bitcoin. Now, buying and selling of bitcoin has been made convenient by several exchanges whereas, in the beginning, only a handful of small scale exchanges operated and allowed people to trade bitcoin. Moreover, the digital currency has disrupted the world with its digital and decentralized characteristics.
Many financial institutions such as banks are directly threatened by bitcoin as it allows users to easily transfer payments over the internet. What sets bitcoin apart is the extremely low transaction fee in addition to the absence of central authority. In this way, bitcoin is making peer-to-peer funds transfer completely decentralized and processing thousands of transactions of billions of dollars worth. In the past, even the head of IMF, Christine Lagarde, accepted the disruption brought by bitcoin as she stated:
I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever … that is clearly shaking the system.
Although the progress of bitcoin is compared with that of gold’s, there are many counter-narratives suggesting bitcoin’s incompetence to match the likes of gold and fiat mone . Bitcoin due to its extreme volatility is not able to remain stable which is a prerequisite for items regarded as a medium of exchange. Furthermore, people also argue that bitcoin is not used to translate the value of other things in its own term which means that it doesn’t qualify for being called a unit of account. Like if a coffee shop accepts bitcoin payments, in reality, it’s not the true bitcoin price. Instead, it is U.S. dollar price translated into bitcoin terms.
This shows that bitcoin despite marking steady progress in several phases has a long way to go before it can be accepted as payment option irrespective to the bitcoin exchange rate against fiat currencies. Previously, Dr. Michael Yuan, Co-Founder of The CyberMiles Foundation, confirmed the same sentiment while talking to BlockPublisher. He stated:
TBD. Neither bitcoin or any other cryptocurrency (e.g., Ripple) is currently used as an everyday currency because they’re treated as a store of value” vs. a true utility token to pay for everyday goods and services.
While bitcoin is on the rise, it would be of interest to see how bitcoin continues its journey to become a unit of account in the future.