Bitcoin's Exchange Theory of Value
TLDR: The premise of this theory is that bitcoin derives its value through exchange. Its ability to store value is of course anchored to its fixed supply, but its utility is in future exchange. Value is realized at the point of future exchange, and value in the bitcoin network is actually created as bitcoin coordinates the transfer of value between economic participants–both in the nominal value of the currency unit and in the network as a whole. As a result, bitcoin increases in value as it enables more trade and that trade will naturally gravitate toward direct exchange for goods and services for reasons fundamental to the nature and utility of money.
Overview and Introduction
Bitcoin is money, and that is a conclusion actively being accepted by more people in more places. Adoption occurs as knowledge distributes, which increases naturally as a function of time. What it means for bitcoin to be money however remains subject to debate. Is bitcoin currency or property? Should it be used as a medium of exchange or should you never spend it.
Working on bitcoin payments at Zaprite over the past year has given me exposure to a cross-section of interesting perspectives. Most bitcoin holders don’t want to spend their bitcoin, most investors don’t think they should and most operators in the legacy payments industry think that it’s too early to focus on bitcoin payments, specifically.
It is increasingly clear that more and more merchants want to accept bitcoin as payment and while it is early days for sure, those merchants are finding willing buyers, despite the fact that no one really wants to part with their bitcoin. In my Pay Me in Bitcoin Theory, I explain why it is rational for business owners to demand payment in a better form of money and why it is even rational for customers to pay in bitcoin–in certain scenarios, despite the friction and opportunity cost. Without needing to predict who, Someone Is Going Next explains the logic as to why growing business demand for bitcoin payments is inevitable.
Whereas these two articles explored the logic of human decision points at an individual level, this piece–Bitcoin’s Exchange Theory of Value–makes the broader case that bitcoin (as with any money) derives its value through exchange and that bitcoin increases in value as its utility as money increases. Specifically, bitcoin increases in value as it facilitates more exchange and as more value is transferred, by and between more human beings, through the bitcoin network.
Importantly, there is no moral imperative to spend your bitcoin. This is not a case or a plea for why anyone should spend their bitcoin. Instead, it is an explanation as to why bitcoin does not derive its value solely through a willingness to save it. And it presents a logical case as to why bitcoin increases in value as it coordinates economic activity–in fact, as it is exchanged in an active sense.
Building tools that improve–and over time, perfect–bitcoin’s utility as money is the input that allows bitcoin to increase in value–on a nominal unit basis and in aggregate. Is it paradoxical that bitcoin will increase in value if it is easier to spend it? No, by definition, it would mean that bitcoin would be that much easier to acquire at the same time. And at a fundamental level, money derives its utility through trade and trade is not zero sum. In the most tangible sense, value is created through trade and that is why bitcoin increases in value through trade and the exchange of value.
The Utility and Value of Money
Money is the intermediary good used to facilitate trade. It is a market good (or tool) that allows trade to scale beyond the needs of a very basic or rudimentary barter economy. The use of a common form of money enables benefits to be gained from the division of labor and specialization within an economy. People use money to coordinate economic activity and to build tools that wouldn’t be possible without it (such as a modern airplane or iphone) and to sell those tools to the market. Money is the tool that makes it more practical for people to trade with each other.
“Being a medium of exchange is the quintessential function that defines money–in other words, it is a good purchased not to be consumed (a consumption good), not to be employed in the production of other goods (an investment or capital good), but primarily for the sake of being exchanged for other goods.”
–Saifedean Ammous, The Bitcoin Standard (2018)
Today, bitcoin is primarily used as a store of value and that is how most people who have adopted bitcoin think of it. In an academic framework, economists will generally describe money as collectively being a store of value, medium of exchange and unit of account. Despite being volatile, bitcoin has been an exceptional store of value but many debate (or believe) that bitcoin is not viable as money because it is not commonly used as a medium of exchange.
As Saifedean Ammous explains in The Bitcoin Standard, being a medium of exchange is the quintessential function that defines money. Bitcoin’s fixed supply of 21 million is what allows it to be such an effective store of value, but it is also what will dictate bitcoin’s use as a medium of exchange. In fact, while often thought of as distinct properties–‘store of value’ vs. ‘medium of exchange’–the two functions are one in the same, dependent on each other.
At the broadest level, think about money as the coordination function within an economy, where the utility of money is to intermediate a series of exchanges (i.e., to facilitate trade). In order to be an effective form of money–which really means to be used as money at all–any respective unit of money must reliably store value between exchanges. Receive, hold, spend. That is the life cycle. It’s that simple. There is an exchange of value on either side of the period over which money is saved. And the ability to easily exchange money for value delivered by others is both what allows money to store value and what defines money.
Trade is Not Zero Sum
Value is tangibly created through trade, division of labor and specialization. Money enables all three. If not for the benefits that come through trade, money would be a turtles-all-the-way-down problem. There would be no utility of money if not for the economic reality that trade produces non-zero sum outcomes.
Trade benefits both parties to an exchange. A consumer that purchases a good or service with money benefits from consumption of that good or service in the present. A producer that purchases a good or service benefits from the future production of a capital good. The seller or provider of a service benefits from the optionality of the money’s purchasing power in the future. It takes two to trade, and both stand to benefit.
It does not mean that all trades work out or that all trades create value. Some trades can be zero sum, and some entrepreneurs can fail to produce value despite their best efforts. Despite some trades not creating value, the basis of trade is mutual benefit. That is what sustains trade. Producers of goods need money to produce, and consumers need money to consume. In any sustaining way, all consumers are producers, and all producers are consumers.
Each individual contributes their time in the production of a good or service to help solve a problem or a need of someone else. It is not altruistic. It is done to symbiotically satisfy one’s own wants and needs. The best way to get the best outcomes is to specialize and to focus one’s own time on an endeavor for which they excel. Compensation for time (and value produced) comes in the form of money. Money coordinates the orchestra and the aggregate output from a trading economy is greater than the sum of what any group of individuals could produce or consume working independently on their own.
That is why trade is not zero sum and that is how money fundamentally derives its value.
Saving Alone Does Not Give Bitcoin Value
If money derives its fundamental value by coordinating and facilitating the exchange of value (i.e. trade), then bitcoin does not derive its value simply (or solely) by one’s willingness to hold it. That can only be part of how bitcoin derives its value. The act of exchange is principal to how bitcoin derives its value.
Imagine you have one bitcoin, and you never plan to spend it but instead, plan to save it forever. Even in this scenario, the bitcoin is only valuable to you because it’s there in your possession, and it’s available to be exchanged should you ever need to do so–if your plans change, you have that optionality. Your act of saving is an act of future exchange. It is deferring consumption or production into the future. The promise of exchange gives it value even if you don’t plan to spend it. Even if you plan to pass it to your heirs, the value must first transfer to your heirs, and its value to them is then derived from the promise of future exchange.
Now assume a scenario in which you destroy the key(s) to your bitcoin so it can never be moved. Or assume upon your passing, you have instructions for the key(s) to be destroyed so the bitcoin can never move. Some may think of this as saving bitcoin forever, but it is not. The bitcoin no longer has value. Zero. It also does not add value to other bitcoin (a discussion for another day). A valuable tool is simply lost and can never be used to facilitate exchange. It is no longer being saved because it can no longer be exchanged.
Now again this is not an argument to go spend your bitcoin, nor is it a statement that bitcoin is not valuable if you are not willing to spend it today. The explanation is more fundamental in regards to how money (and bitcoin) derives value. If you are saving bitcoin, its value proposition to you is the promise of future exchange and optionality, both in terms of what you might purchase and when. Even if you do not plan to spend bitcoin any time soon, its value is predicated on your ability to exchange it–or your expectation of exchanging it for value in the future.
In fact, its value is only realized when you do exchange it, whether for dollars as an indirect intermediary to then acquire a good or service, or whether you exchange bitcoin directly for goods and services. And bitcoin increases in value by the function of exchange. Each time bitcoin effectively transfers value from one human to another (again direct or indirect through fiat), both sides of the trade get something they want. The successful transfer of value or the realization of value being transferred itself creates value in the underlying medium of exchange.
The medium (bitcoin) is a tool to coordinate trade. Even if some believe themselves to only be using bitcoin as a store of value, he or she is using it to coordinate a series of exchanges (i.e. to coordinate trade). Even if the time horizon between the exchanges is very long, bitcoin is coordinating trade. Even if bitcoin is first converted to dollars, bitcoin is coordinating trade. Even if bitcoin is used as collateral to borrow against to get dollars, bitcoin is still coordinating trade. In each scenario, the value of bitcoin is not derived simply by a willingness to save it.
The Value of Bitcoin Derived Through Exchange
Exchange (and the transfer of value) is core to how bitcoin derives its value. That is the realization of its utility as a store of value. If bitcoin were never exchanged and if it were never used to transfer value, then it would not be valuable as money. Conversely, as bitcoin facilitates more exchange and transfers more and more value, that is how the network as a whole increases in value (because trade is not zero sum). The more opportunities for trade and exchange–both in terms of conversion to fiat and direct exchange for goods and services–the more valuable bitcoin becomes.
Consider Elon Musk and Tesla. In 2021, Tesla bought bitcoin. Shortly thereafter, Tesla sold 10% of its bitcoin, with Elon Musk stating that Tesla did that “essentially to prove liquidity of bitcoin as an alternative to holding cash on balance sheet.” Later and cumulatively, Tesla sold 75% of its bitcoin for nearly $1bn. While bitcoiners understandably mocked Musk for his poor financial decisions, there inevitably was some truth in his statement. Taking Musk at his word, he needed to know whether Tesla could actually get value in return for bitcoin, and it inevitably informed his understanding of bitcoin, even if through selling it.
Everyone assumes he or she can get value from their bitcoin when (and if ever) they need to exchange it but until they do, it is an inherent unknown. If you’ve never exchanged your bitcoin for value in return, you are assuming that you can but until you do, you don’t really know. And when you do, it reinforces the value you place on bitcoin–both in terms of value realized through exchange in the present and the value of your remaining bitcoin savings.
It also serves to make the point that the transfer of value is how money derives its value. Even when you sell bitcoin, the value of bitcoin as a medium of exchange is increasing. Someone else is buying and importantly, value is being transferred. Step outside of the narrow view of bitcoin’s dollar value after each tick up or down on an exchange. More trade equates to more value. Today, that trade is largely facilitated through dollars (or other fiat currencies) as an intermediary, but think more tangibly about the future world where bitcoin is being exchanged for goods and services and actual capital is being built.
Bitcoin itself is not capital–at least not in the sense that capital is traditionally defined. Bitcoin is money. Money is traded and exchanged to build capital: homes, cars, roads, telecommunication networks, water and waste management systems, shipping supply chains, electricity grids, pipelines, pump jacks, drilling rigs, grocery stores, etc. Steve Jobs used dollars to pay employees and suppliers to design and build the iPhone. Capital was built through the exchange of money. The same is and will be true of bitcoin. Bitcoin will be used to build phones, pave roads, drill oil wells, etc.
However, with bitcoin, it will be more clear that the value of money is derived through exchange and the accumulation of capital. The total nominal supply of bitcoin remains constant. With a fixed supply of 21 million in a terminal state, no more money can be created, but recognize that the consequence is 100% of all money is always being saved by someone. That money will be traded between individuals and businesses, and more capital will be accumulated–as more things are built–and that is how each unit of bitcoin becomes worth more. That is how the purchasing power of each unit increases: more goods and services become available relative to the same nominal amount of money in aggregate.
Gold as a System Corollary
If it is hard for you to imagine how bitcoin transitions from a stock-like financial asset to a stable form of money facilitating day to day trade, think about gold as a corollary.
Most people do not understand why gold emerged as money over thousands of years. And that’s ok. But just accept that the Gold Standard existed and that JP Morgan, the man himself, did in fact say, “Gold is money, everything else is credit.” There was a time when nearly the entire world converged on gold as money–as a standard of value–and the dollar began as a note (or contract) that was convertible to gold. The dollar’s basis as money derives from gold.
Now think back in history to when gold was first discovered in raw ore form before the word gold even existed–in any language. When gold was first discovered, gold was not money. It is typically found in different types of ore and the actual gold, which tends to be only a small percentage of the mined rock, is extracted by metallurgical techniques. Over centuries, the commodity gold was refined, and eventually, a monetary system was built.
Fast forwarding past its early industrial and ornamental uses, standard weights and measures were established. Mints were created to refine the gold into coins and bars, with standard weights and measures. People built vaults to better secure the gold coins and bars. Tools were created to assay gold–to determine if gold was really gold. Armored vehicles (and wagons before them) were manufactured to facilitate the more secure transfer of gold. Settlement networks emerged to trade gold. Eventually, fiat currencies emerged to scale the transfer of claims on gold that were secured in vaults and settlement networks.
Gold evolved from raw ore in the earth to a fully functioning money system. It was not always stable in value. Gold remained the same in elemental form, but its utility grew as the raw commodity was refined and as a system to facilitate trade was built on top of it. The purchasing power of gold grew and stabilized as its utility increased and specifically as it was capable of facilitating more trade–which would not have been possible without the tools being built to make gold viable as money. Its value was derived through trade, and trade increased as gold was refined into a working money system–therein its value increased as it facilitated more trade.
The Evolution of Bitcoin
Bitcoin is still very much at the raw ore stage of its development as money. It exists, but most of the world does not yet understand the significance of its fixed supply. It combines the property of finite scarcity with the ability to be transferred over a communication channel and in a way that is resistant to all forms of censorship. A commodity finite in supply that can be sent over the internet (by anyone) is the foundation for a new global standard of value, and a growing number of individuals and businesses are working to turn the clunky raw ore that is bitcoin today into a fully functioning money system.
A combination of custody (and custodians), wallets, nodes and mining are critical to the security of the network. Bitcoin miners and nodes secure the integrity of the system as a whole, collectively enforcing bitcoin’s fixed supply and ensuring that the network is resistant to censorship. Bitcoin custody solutions and wallets–on the other hand–secure the economic interest held by each respective participant in the network.
For bitcoin to be an effective store of value, it must credibly enforce its fixed supply, and each participant must be able to securely custody their funds. If it were possible for someone to lose their bitcoin, bitcoin would not be an effective store of value. However, being an effective store of value is predicated on a future exchange–that is really why you need to safekeep bitcoin. Secure custody is critical to bridge the period between a past exchange and a present (or future) exchange. And bitcoin would not increase in value over time if infrastructure were not built to make it easier to both store and transfer value by and between more people.
To be clear, bitcoin is being used to transfer and exchange value both when an individual or business uses a bitcoin exchange to convert fiat to bitcoin (or vice versa) and when bitcoin is used directly as payment for goods and services. In the first instance, the value transfers indirectly through an intermediary–the institution and the fiat currency are each intermediaries. But bitcoin is transferred from one person or entity to another all the same. Even if indirectly, bitcoin is facilitating the exchange of value. Similarly, when an individual or entity purchases a good or service with bitcoin as payment, value is being transferred and exchanged. In this latter case, the value exchange just happens on a direct basis. Investment in infrastructure to support both increases the ability to exchange and transfer value using bitcoin.
When the next bitcoin adoption wave occurs, safely assume that the universe of bitcoin holders will increase by five to ten times. While you might think of it as more people buying bitcoin to force its price higher, what is actually occurring at a fundamental level is that bitcoin is transferring from one individual or entity to another. Bitcoin is facilitating trade and the transfer of value between more people. Value is created in the medium through that process–the network as a whole and the nominal unit of currency both increase in their fundamental utility. Value is similarly created when trade and the transfer of value occurs directly using bitcoin as payment. In either case, the infrastructure must first exist to easily transfer value with bitcoin before the network can increase its ability to facilitate exchange.
And importantly to the broader point, if the utility in money lies in its ability to coordinate trade, then bitcoin’s value is not merely tied to one’s willingness to save it. It is tied to its ability to coordinate trade and to transfer value between humans. All infrastructure that makes the exchange of value easier increases bitcoin’s value: i) to make bitcoin accessible to more people and ii) to make more types of trade possible. Within this framework, exchange of value will naturally gravitate to direct commerce–as payment for goods and services–because that is what makes trade most efficient collectively in terms of expanding the addressable universe of people who can adopt bitcoin, in maximizing the market opportunities for exchange and in cost.
Bitcoin as a Direct Exchange Medium
Bitcoin’s logical end game is collectively as a store of value, medium of exchange and unit of account. That is the vision. Everything is priced in bitcoin, and practically every good or service is traded in direct exchange for bitcoin. This is the logical conclusion because it maximizes and perfects the utility of bitcoin as money to the greatest number of people on earth. The incentives of an open and permissionless form of money with a fixed supply will dictate it. Regulatory regimes and tax codes will inevitably have to adapt around bitcoin’s use as money–not every jurisdiction has to participate but anyone who wants to benefit economically from trade, specialization and the division of labor will, similar to how El Salvador has.
Organically, as bitcoin becomes accessible and adopted by more people, the opportunities for direct exchange increase by orders of magnitude. Naturally, as more people value bitcoin, the population density of bitcoin holders increases and that will create more scenarios where willing sellers (of goods or services) that want or demand bitcoin overlap with willing buyers (or customers) that have bitcoin. In the end, introducing an entirely separate currency system as an intermediary to the process of trade will become an inherent inefficiency–for the principal reason that bitcoin is perfectly capable at a fundamental level of facilitating trade directly. In the future, a separate currency system as an intermediary would stand only to increase cost and friction in the process of exchange.
Today however, the legacy currency system is leveraged as a pricing mechanism to facilitate bitcoin payments–i.e. it actually creates efficiency today. A price is typically set in dollars and at the time of purchase, the amount of bitcoin to be paid is calculated using a bitcoin-to-dollar exchange ratio. But in the future, prices will simply be denominated in bitcoin and that itself will increase the ability for bitcoin to facilitate exchange efficiently. Adoption will increase as the ability to exchange directly increases and vice versa. Stability in the “price” of bitcoin will emerge as a function of mass adoption. Stability in price will actually come in the form of everything being priced in bitcoin. But stability will follow as a function of direct exchange.
If the utility of money is derived through trade, the value of the money increases as more trade occurs. That is the baseline. The following explains why that trade, in the context of bitcoin, will naturally gravitate toward direct exchange. As a derivative, it explains why the value of bitcoin will increase more through direct exchange than through the fiat monetary system as an indirect intermediary. Every premise builds on the principle that trade is not zero sum, such that as more trade occurs, more value is delivered and derived.
- Expanding The Addressable Universe of Trade
Use of bitcoin in direct exchange for goods and services will expand the universe of possible exchange. Today, the dollar, euro and yen are the global reserve currencies–with the dollar being by far the largest. In aggregate, fewer than one billion people have access to these currencies on a daily basis. And of those people, not everyone has access to each and for those who do, foreign currency exchange between the currencies is extremely expensive (i.e., inefficient). With nearly eight billion people on earth, more than seven billion people do not have access to the most reliable currencies in the world. If you were to exclude populations with access to the Chinese Yuan, British Pound, Canadian Dollar and Australian dollar, five to six billion people do not have access to the world’s most popular and reliable currencies.
Large fiat exchanges may be popular in countries and regions where legacy financial centers exist, like the US, the UK, Europe, Japan, Hong Kong, Singapore, etc. It is logical for bitcoin-to-fiat exchanges to be popular where financial centers exist because the financial centers exist there for a reason–for the rule of law, respect for the movement of capital and the present reliability of local currency. This does not mean that fiat cannot be exchanged for bitcoin outside of countries or regions with well established financial centers, but the cost and friction increases measurably. Exchange between fiat currencies as intermediaries becomes more inefficient and cost becomes even more prohibitive.
More consequentially, the transfer of bitcoin directly for goods and services will be more accessible to more people in the world simply by definition of access. It is not feasible to get bitcoin to everyone in the world through fiat exchange. Bitcoin is permissionless, and it is able to be transferred at lower cost than fiat. This ultimately makes it more logical for bitcoin to flow through the world–both distributing within local economies and cross borders between developed and developing economies–directly rather than through fiat currencies to maximize trade.
- Maximizing the Market Opportunities for Exchange
Because bitcoin is capable of direct exchange, restricting exchange only (or principally) to fiat currencies would limit the bitcoin network’s ability to facilitate trade and create value. It would inevitably result in bitcoin being exchanged for fiat with the fiat then routed through large financial institutions unnecessarily, which would merely serve to reintroduce the cost and friction of routing money in the legacy system–whether locally or cross border.
Less trade would actually be effected between direct counterparties in the bitcoin network if the fiat system were used as an intermediary. If fiat were used as the last mile currency, bitcoin would be transferred between large institutions rather than directly between individuals and businesses. And more trade directly effected by the bitcoin network would simply be better for the market of bitcoin holders that actually want bitcoin–for the reason that it can cut out an unnecessary middleman-system that introduces friction in the form of trust in additional counterparties, time delays and the inefficiency of an entirely different price system, beyond just the tangible costs.
Furthermore, because bitcoin is able to effect fully-funded trustless transactions, bitcoin will also be able to effect transactions that are not possible in the fiat system. And this is not just a matter of small sub-penny equivalent, micro-transactions on the internet. As a few examples, remittances can be sent from one family member to another in a different country, with immediate access to it, and without a middleman. Payments could be made intra-day to pay power contracts. Or a paywall could be set up for instant-access to an API service, online coursework or for e-books (or other content) without needing to attach identity and with immediate settlement. The range of trade will expand through efficiency gains of the bitcoin payment system and that will drive more trade.
Lastly, the market of bitcoin holders will ultimately expand to be larger than the size of any single country, and direct exchange will be possible by and between more people than ever before. That itself might be the single largest driving force that will expand the scope of trade and direct exchange–more people holding and being willing to accept bitcoin will create more trade channels than could possibly exist in the fiat world.
"Having a single medium of exchange allows the size of the economy to grow as large as the number of people willing to use that medium of exchange. The larger the size of the economy, the larger the opportunities for gains from exchange and specialization, and perhaps more significantly, the longer and more sophisticated the structure of production can become." - Saifedean Ammous, The Bitcoin Standard (2018)
- Reducing Direct Cost of Exchange
A bitcoin transaction is more similar to a cash transaction than a debit or credit card transaction from one bank account to another for the principal reason that bitcoin transactions–whether onchain or lightning–are fully funded. Bitcoin allows for trustless transactions that can actually be funded at the time of purchase. Even if a bitcoin transaction included financial institutions on either side, the transaction would be cheaper to effect than a comparable transaction in the fiat system because the fiat system is an inherently trust based system–fully funded digital transactions cannot be effected in the fiat system without a trusted counterparty because it is an inherently trust-based system. Cheaper transactions lead to more efficient trade, and more efficient trade leads to more trade.
Conclusion: Bitcoin’s Exchange Theory of Value
Despite it being in its raw ore phase today (and admittedly still clunky), there is no technical constraint that will prevent practically all trade in the future from being facilitated directly in bitcoin, without fiat as an exchange intermediary. And that is a good thing because bitcoin derives its value as a value transfer system. The more efficient value transfer becomes, the more value that will be transferred. And the more value that is transferred, the more valuable bitcoin becomes (each nominal unit and in total). If you follow the premise that bitcoin cannot derive its value solely by being saved and that its ability to be an effective store of value is predicated on its ability to be exchanged in the future, then it should logically follow that its value increases as it becomes exchangeable between more people and for more goods and services.
Turned around, the value of bitcoin would be inherently capped if it were only exchangeable for fiat currencies and if it were only saved and never spent. Trade and the transfer of value, through which bitcoin derives its value, would be unnecessarily and artificially constrained. Fiat currencies (and the institutions with permission to the fiat system) are by definition a smaller universe than fiat currencies and all individuals and businesses selling goods and services on a direct basis. And never forget the wisdom of old adages–you have to spend money to make money. Or rather, you need money to coordinate economic resources and to build and accumulate capital. If bitcoin is money, everyone is going to have to spend it in the future, and the key to accumulating savings in bitcoin will remain anchored to your ability to produce more value than you consume.
Consider the thought exercise if 100% of your savings were in bitcoin (i.e. in the better money), never spending your bitcoin would mean never consuming anything produced by others. Not only would never consuming anything produced by others be unrealistic to survival, but it would mean no trade. And no trade would mean no benefit from specialization and division of labor. It would also mean no entrepreneurs taking a risk to build a new business, to offer a new service or to invent a new technology. Separately, constraining yourself to only being able to trade bitcoin for fiat currencies to then consume (or produce) goods and services would limit your ability to freely exchange and inevitably introduce greater friction (i.e. cost) to trade.
Every participant in the bitcoin network would benefit from more infrastructure that increases bitcoin’s utility as money. That universe spans across custody (or safekeeping), mining and importantly, payments. Thinking narrowly about saving bitcoin as a means to increase its value (and your purchasing power) is inherently limiting and fundamentally inconsistent with how value is derived through money. In order to create wealth, you have to take risk to solve problems, to build capital and to deliver value through goods and services. Nothing about bitcoin changes that. Instead, bitcoin will serve to improve the market’s ability to create wealth by serving as a better form of money.
The purchasing power of money is the output of trade. Making a conscious effort to avoid using a currency to facilitate trade runs counter to its utility. And making a conscious effort to not use bitcoin to facilitate trade would limit its value–i.e. in scenarios where it is more convenient, cheaper or if the merchant prefers bitcoin. It would be shortsighted in the grand scheme of building a stronger, more stable economic system. Such a strategy would run counter to increasing your purchasing power or even acquiring more bitcoin by building tools to perfect bitcoin as money. That is also why infrastructure to facilitate the transfer of bitcoin in direct exchange for goods and services is vital to the future value of bitcoin. Bitcoin’s highest and best use is as money, and its value is derived through exchange or the promise of future exchange. Over time, that is why bitcoin stores value.
To learn more about bitcoin, check out my book: Gradually, Then Suddenly. You can read the online version free at the Nakamoto Institute or buy a copy of the hardcover at TheSaifHouse.com.
If you or your business are interested in accepting bitcoin payments for your business, check out Zaprite. I'm part of the team and we're here to help.