Bitcoin and Its Limitations as a Medium of Exchange and Unit of Account
Bitcoin, a decentralized digital currency, has gained significant popularity in recent years. While it offers various advantages, it also falls short in fulfilling two of the three essential functions of money: serving as a medium of exchange and a unit of account. In this review, we will explore the positive aspects of Bitcoin, identify the functions it fails to satisfy, list its benefits, and discuss the conditions under which Bitcoin can be effectively utilized.
Positive Aspects of Bitcoin:
- Decentralization: Bitcoin operates on a decentralized network, eliminating the need for intermediaries like banks. This enhances transparency and reduces the risk of manipulation by central authorities.
- Security: Bitcoin transactions are secured through cryptography, making it highly resistant to fraud and identity theft.
- Accessibility: Anyone with an internet connection can participate in Bitcoin transactions, making it accessible to individuals across the globe.
- Low Transaction Fees: Compared to traditional banking systems, Bitcoin transactions generally incur lower fees, especially for international transfers.
Functions Bitcoin Fails to Satisfy:
- Medium of Exchange:
- Lack of widespread acceptance: Bitcoin is not universally accepted as a form of payment, limiting its usefulness in day-to-day transactions.
On the other two attributes of money – being a unit of account and a store of value
– bitcoin fails. Shops do not quote prices in bitcoins
; rather, shops that accept bitcoin typically quote prices in the local currency and then do a conversion to bitcoin at the current exchange rate if someone wants to pay that way.
What are the three functions of money in Bitcoin?
In order for cryptocurrencies to replace money, they must have basic characteristics of money and fulfill functions of money with priority. Money serves three functions as; being a medium of exchange, a unit of account, and a store of value.
What essential function of money has Bitcoin failed to fulfill?
Despite the hype, cryptocurrencies still don't fulfill the basic functions of money as a store of value, means of exchange, and unit of account.
Does Bitcoin satisfy the functions of money?
Although Bitcoin does not qualify as a type of currency or electronic currency, Bitcoin fulfills the functions of money that are defined by both (Mishkin, 2004) and the European Central Bank: Money serves as a medium of exchange.
Which of the function is not a function of money?
Answer and Explanation:
The price mechanism
is not a function of money. It is a system for setting the prices of goods and services through the interactions between sellers and buyers. Money has three main functions, and these include store of value, medium of exchange, and unit of account.
What function does Bitcoin use?
The Bottom Line. Bitcoin is a payment that uses virtual currency instead of fiat or physical currency. It uses a blockchain to secure transaction information out of the reach of centralized third parties who traditionally facilitate and regulate transactions