Skip to main content

What is the nature of Bitcoin?



Bitcoin was created in the year 2008, but still, there is undying interest to this phenomena. It will be recalled that Bitcoin was developed by Satoshi Nakamoto (a person or a group of authors). Satoshi Nakamoto published the document where the first cryptocurrency was described. Also, the client for the network was issued and the genesis block was generated. This fact was the beginning of the Bitcoin era. The idea of cryptocurrency was not a new one. It was described by Adam Back and Nick Szabo in the 90s. Their experience later formed the basis of the Bitcoin network.


Bitcoin affected interests of the wide range of economic agents all over the world. The creation of Bitcoin was an expected result of financial instrument development. The idea of Bitcoin got a shot in the arm in the period of financial crisis of 2007-2009. Crisis recovery assumed the development of new revolutionary financial technologies. And cryptocurrencies created new possibilities in such a difficult period. The uniqueness of Bitcoin is specified by its features such as decentralized nature, lack of regulations by monetary authorities, privacy, availability to conduct transactions all over the world, low operation costs. So Bitcoin has a very important role in the global economy.


So what is the nature of Bitcoin in the economic aspect? There are different points of view on the definition of this cryptocurrency. The most common views state that the Bitcoin is:

  1.     Asset
  2.     Commodity
  3.     Currency
  4.     Collector’s piece

Let’s take a look at the definition of above-described terms according to Oxford Dictionaries and make our own conclusions.

The asset is “an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies”. So assets generate or are capable of generating cash flows in the future. Among traditional economic instruments, such assets are bonds and stocks. The common thing for the assets is that their cash flow can be estimated in regard to risks, as well as to financial ratios. Bitcoin cannot be defined as an asset because it doesn’t generate cash flow for its holders.

A commodity is “a raw material or primary agricultural product that can be bought and sold”. The value of the commodity can be defined by the means of demand and supply.  It is hard to estimate the intrinsic value of Bitcoin, that’s why it is difficult to regard Bitcoin as a commodity.

Currency is “the fact or quality of being generally accepted or in use”. Currency can be used in order to estimate the cash flow but it doesn’t generate cash flow by itself. It can be regarded as a store of value as well as a medium of exchange. The value of currencies can also be compared with each other. So if Bitcoin saves the characteristics of currency, such as means of circulation, a medium of exchange, store of value it can be regarded as currency by itself.

Collector’s piece is “an object valued by collectors, because it is rare, beautiful, or has some special interest”. It doesn’t generate cash flow and isn’t a medium of exchange. It is hard to name Bitcoin as a collector’s piece as Bitcoin is a medium of exchange in some cases.

The governments don’t have the unified classification of Bitcoin. So its status differs from country to country. The USA have different points of view depending on agencies. Commodity Futures Trading Commission (CFTC) states that Bitcoin is a commodity, the Internal Revenue Service (IRS) thinks that Bitcoin is a property. The Financial Crimes Enforcement Network (FinCEN) announces that Bitcoin is the money. It is not hard to notice that Bitcoin is classified in the way how it will be easier regulated by the concrete agency.

Canada, Mexico and Argentina state that Bitcoin is a commodity. Germany classifies Bitcoin as money, while Switzerland and South Korea as an asset. Great Britain thinks that Bitcoin is nor asset, neither currency, so there is no official status of this cryptocurrency till now.

To sum up, Bitcoin has become a global challenge to the common regulators of the global financial system. It stipulates high risks to its holders. Bitcoin can be classified as currency if it saves its characteristics such as a store of value, means of exchange, the instrument of payment and if it extends the sphere of use. The classification of Bitcoin by the governments of different countries aims to simplify the regulating measures regarding this cryptocurrency and can’t be regarded as the ultimate truth.

Labels:

Comments

Post a Comment

Popular posts from this blog

Can Smart Contracts replace traditional contracts?

Smart Contracts brought a revolutionary approach to the implementation of the agreements. They enable to performance agreement and preset parameters without a centralized intermediary. That means the avoidance of multiple representations that can take place in the traditional contracts. If the definite parameter is set in the Smart Contract the result will always be unamended apart from any interpretations. This fact differs the Smart Contracts from the traditional contracts where there are often the possibilities of various readings. When such a  situation occurs, the parties need to apply to the court and the solving of discord takes a huge amount of time, money and efforts. So what Smart Contract is? Let’s take a look at the most official definitions. According to Nick Szabo, who coined this term, “A Smart Contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises”. He described the idea of a Smart Contract more
Post a Comment
Read more

What is better STO or ICO?

Initial Coin Offering (ICO) has become a very popular method of crowdfunding recently. During a few years, a great number of funds were raised by means of ICO. It helped many startups, their teams and investors gained success and realized amazing ideas. But also participants of ICOs faced the risks connected with investments in scam projects. That’s why the new instrument such as the Security Token Offering (STO) appeared. During the ICO the utility tokens are issued. By buying the utility tokens the investors acquire access to the products or services in the future and teams attract the funds for the finance of their blockchain developments. Utility tokens are purchased exclusively for internal calculations, the exchange between users, fees for the provided functions of the software, and so on. Investment is required to simplify the use of the service. So what is Security Token Offering? STO means the emission of digital assets in accordance with requirements on securities legislatio
Post a Comment
Read more