Will Bitcoin Derive its Value from its Use as a Medium of Exchange?

Despite being volatile, bitcoin is desirable among crypto enthusiasts and investors due to its capability of returning massive gains. While investors associating bitcoin with speculation mainly are waiting for the next bull run, the success of bitcoin is dependent on several other aspects.

According to Satoshi Nakamoto, creator of bitcoin, the largest decentralized cryptocurrency of the world by market cap was introduced to facilitate peer to peer payments. Although the primary use case of bitcoin revolves around speculation, it must become a medium of exchange in order to achieve the vision of its creator.

As bitcoin evolving into a medium of exchange becomes substantially significant, assessing the attributes of bitcoin and exploring the viability of bitcoin becoming a medium of exchange turns out to be important as well. At the moment, gold and fiat currencies are considered a medium of exchange.

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In simple words, anything that can be used to ease trade, sale or purchase of goods between parties is considered as a medium of exchange. However, there’s a prerequisite for a medium of exchange which holds the utmost significance for any asset qualifying as a medium of exchange.

All entities obeying the criterion of the medium of exchange need to represent a standard of value that is acceptable and recognizable among people. Any commodity capable of defining and measuring the value and worth of another commodity is said to be a standard of value. For example, when a person buying shoes in a shop asks for its price, the value of shoes is expressed in U.S dollars, a standard of value and a medium of exchange.

Over the course of 10 years, bitcoin has established itself as a store of value. A first of its own kind, bitcoin is often regarded as digital gold as well. While the digital cryptocurrency has managed to satisfy many for being a reliable store of value, the volatile nature of bitcoin criticized by many hasn’t convinced others.

Apart from the dubious status as a store of value, the bitcoin scalability problem has prevented it from becoming a medium of exchange. At the moment, bitcoin can only handle at most 7 transactions per second which shows that there are several limitations stopping bitcoin from becoming a medium of exchange.

Although bitcoin can’t handle traffic like other mediums of exchange, its inflation-free nature makes it an ideal substitute for fiat currencies. Let’s see if bitcoin can manage to become a medium of exchange in the future.

READ ALSO: China’s Malice towards Crypto leads to Deterioration of Bitcoin Economy

Hassaan Malik

Co-founder of BlockPublisher, Hassaan is a technologist at heart with a keen interest in blockchain, cryptos and traditional financial markets. Email: hassaan@blockpublisher.com, hassaanmalek@gmail.com

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