1. Identifiable
- Since a distributed system of computers keeps
the Bitcoin ledger, and since access to Bitcoin addresses uses proven
cryptographic tools, there is almost no chance that the multiple nodes
and miners will fail to distinguish a “fake” bitcoin from a real one.
2. Transferable
- Bitcoin can be sent anywhere in the world in minutes. The “wallets”
(software and hardware used to manage private keys) are still a pain to
use, but they are improving as numerous organizations launch better
products. Some of these groups are large corporations; others are
nonprofit hacker teams. Bitcoin transaction fees are currently low (less
than a dollar), although in late 2017 they peaked as high as $60. As
second-layer protocols, such as the Lightning Network, are built on top
of the existing Bitcoin base layer, fees should be kept under control and
may even fall to fractions of pennies per transaction at the second layer.3. Durable
- Bitcoin’s LEDGER exists on tens of thousands of
computers worldwide. If the global Internet goes down, then Bitcoin
won’t work. But that is a very low-probability outcome because of how
the Internet is structured and how much critical infrastructure is built on
the Internet. If it does happen, we’ll have much larger problems than the
loss of Bitcoin, considering how much of global commerce and even
healthcare now lives on servers in the “cloud.”4. Divisible
- Each single bitcoin is divisible to eight decimal
places, meaning that each bitcoin is divisible into 100 million pieces, each
of which is colloquially known as a “satoshi” or “sat” (in homage to
Bitcoin’s pseudonymous creator, Satoshi Nakamoto). Even if Bitcoin
manages to reach a price of $1 million per bitcoin (over 100x its current
price), the smallest denomination (one one-hundred-millionth) of a
bitcoin will still be worth only one cent. This can make it highly
serviceable for micropayments, as we will discuss later.5. Dense
- Bitcoin is the densest form of money in existence.
Billions of dollars can be stored on a single piece of paper or USB-sized
device.6. Scarce
- As we have discussed, scarcity is among the most
important of the 14 Characteristics of Good Money. Bitcoin’s supply
curve is strictly limited to a hard cap of 21 million bitcoins. This limit
makes Bitcoin the scarcest money every created.7. Fungible
- So far,it has usually been the case that a bitcoin is a bitcoin is a bitcoin.
However, there have been cases of Bitcoin addresses being blacklisted
by governments. Smart software developers and entrepreneurs are
working on solutions for improvements in fungibility. See also the
“Private” section later.8. Short-Term Stable Value
- Bitcoin’s price routinely moves by several percentage points
daily and occasionally by more than 10% in a day. But the volatility has
decreased over the years, and most of the volatility has been upward
(i.e., the good kind of volatility). Over time, its maturation will continue
to reduce the volatility. However, because the supply of bitcoins is
strictly fixed, it will always be true that any change in demand will cause
a change in price. There is no supply “cushion” for changes in demand.
Therefore, Bitcoin’s purchasing power may always fluctuate more than
gold’s, since gold’s supply does respond somewhat to increases in price.
In a “hyperbitcoinization” scenario in which Bitcoin takes much of the
market share from global fiat currencies and gold, Bitcoin’s sheer size
might eventually make its purchasing power less volatile than other
forms of money. But to achieve volatility lower than gold or the dollar,
Bitcoin might have to reach tens of trillions of value (in today’s dollars).9. Long-Term Stable Value
- Because it is a noninflationary asset, Bitcoin should maintain
or increase its purchasing power over time. There have been one-year
periods in its history when it has lost 80% of its value. But over multiyear
time periods, as adoption has increased, Bitcoin’s value has
increased dramatically. Gold has held its purchasing power over
millennia. Since Bitcoin’s supply is even more limited than gold’s, Bitcoin
will probably enjoy rising purchasing power in the long run.10. Unseizable
- Except by torture or extortion, Bitcoin is nearly impossible to seize because possession can be protected as long as
the holder can remember a password.11. Censorship-Resistant
- The design of the Bitcoin network
makes it very difficult to stop someone from making a payment. If you
can access the Internet, you can pay someone with Bitcoin. Anyone with
any fear of being cut off from the financial system, whether via due
process, accidental miscarriage of justice, or whim of a malevolent
government agent, might want to hold some bitcoins.12. Private
- The Bitcoin blockchain is fully auditable, so if you’re seeking to engage in
criminal activity, I don’t recommend using Bitcoin. Every transaction can
be associated with a particular address. Keys can be generated
anonymously, but if someone can link an identity to any transaction into
or out of the address, then they have a good chance of identifying the
address owner since all transactions to or from the address are visible to
the public. Today, companies such as Chainalysis are dedicated to putting
these pieces together to monitor the Bitcoin network. Moreover, anyone
who buys bitcoins through an exchange such as COINBASE that does
“know your customer” (KYC) checks will have his identity linked to the
bitcoins he buys. There are some methods (e.g., buying bitcoins through
non-KYC outlets or using coin “mixers”) that may allow buyers to
achieve some level of privacy, and quite a few developers are working on
improving them. But the long-term efficacy of such systems remains to
be seen, and it’s probably prudent to expect only modest improvements,
rather than major ones.13. Required for Some Important Purpose
- Today, there are only a few people/entities that
insist on bitcoins as payment. However, as Bitcoin gains prominence,
more market participants will likely require it.14. Backed by a Powerful Agent
- Some black-market participants may seek to defend
Bitcoin. Also, nations subject to sanctions may find it useful, possibly
even more in the future than today. Some central banks will probably
even hold some as reserves someday. The Bank of Japan would be a
likely first-mover among developed countries, considering the fact that
Japan’s government has historically been friendly to Bitcoin and also
that holding a noninflationary form of money could offer an interesting
way for Japan to solve its crushing debt problem.
