
Debate HN: Is Bitcoin a currency or a commodity? - iuguy
I read the recent forbes[1] article on Bitcoin and it made me wonder how someone could miss the point of Bitcoin so much. This lead to a particularly interesting debate on an IRC channel I'm on about whether or not Bitcoin is actually a currency. The pro side of the fence felt that as they could use it as a means of purchase it was good enough to be a currency. The anti-side felt that as it wasn't protected by law, it wasn't, and that it's volatility was more associated with a commodity such as gold.<p>What do you think? Is Bitcoin a currency, a commodity or neither?<p>[1] - http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/
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jcampbell1
Money has several properties:

1) Medium of exchange. \- Can be used to buy goods, thus avoiding barter

2) Store of value \- Sell your crops today for money, knowing the money can be
used in the future to buy fertilizer in the future

3) Unit of Account \- Money must be divisible

4) Measure of Value \- Can be used to understand the relative values of
dissimilar things.

Given the high volatility of BitCoins, it is not currently useful as money. It
is not a good store of value nor a good measure of value, and there are a
limited number of things that can be bought with bitcoin.

Bitcoin is awesome as an anonymous wire service supported by bitbugs and
speculators who are hoping it becomes a currency. Even if it is never useful
as money, it may be valuable for a very long time.

~~~
orclev
2 and 4 will be solved by 1. Currently very very few places accept BitCoin as
a form of payment and because of that the value is disconnected from
everything but the commodities market (MtGox and other currency exchanges).
Normal commodities have uses outside of stores of value, E.G. gold is useful
both for aesthetic reasons (jewelry) as well as functional ones (good
conductor), which help to add stability to their values on the commodities
market. Because the current primary use of BitCoin is solely as a commodity to
be traded, the "value" of BitCoin is massively subject to fluctuation, minor
changes in investment by the commodities market lead to massive swings in
value.

If BitCoin can survive long enough to see more widespread adoption of it as a
currency that should go a long way towards helping to tamp down the swings in
value we currently see occurring.

~~~
jcampbell1
> If BitCoin can survive long enough to see more widespread adoption of it as
> a currency

My question is why would it see widespread adoption? The only reasons I can
think of are: it allows anonymous online transactions, has low transaction
costs, is not backed by a government, and is interesting on a tech level. I am
not sure these reasons are good enough to cause widespread adoption.

~~~
GaryRowe
Low transaction costs translates directly into increased profit margin. Surely
every business wants that?

~~~
jcampbell1
Businesses want low transaction costs, but most business face competition and
the customer decides the transaction medium. For instance, my company accepts
paypal, not because I like it but rather my customers do.

Of course a company with monopoly power could force adoption. For instance
Bitcoin would take off if your utility companies only accepted bitcoins, but I
don't think that is likely.

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AndrewDucker
Bitcoin is such a mix of different things that it doesn't easily fit into any
of our existing boxes.

Which doesn't necessarily make it a bad thing. It just means that saying "Does
it satisfy criteria X" doesn't help unless you're deliberately talking in
metaphor.

In one way, it's like asking "Is the internet a series of tubes, or a
superhighway?"

~~~
jamespitts
Totally agree with you here. These metaphorical boxes or mental frames help
introduce us to the different uses, but often make analysis and debate very
difficult. Worse, many aspects of bitcoin are inaccurately portrayed by even
the most prominent economists in support of their various positions on the
medium.

The real uses and pitfalls are emerging, indicating that this is a technology
with huge potential. If you want to think of a special use, really dig in and
get to know what makes bitcoin bitcoin.

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cdrux
I would suggest that it is both, as I don't think the two are mutually
exclusive, and with the way commodity and currency exchanges operate the lines
are definitely blurred.

As for your particular examples; commodities have always been used as a means
of purchase whether by way of trade, barter or as a currency substitute (gold,
silver, etc). The trade of commodities are protected by law. And currency
volatility ranges with some currencies being highly stable and others hugely
volatile, more so than most commodities.

So trying to bucket bitcoin like this doesn't seem to be worthwhile. I think
the better discussion would be whether or not bitcoin should actually hold any
value.

~~~
iuguy
> I think the better discussion would be whether or not bitcoin should
> actually hold any value.

An interesting point. Do you think that it should hold any value?

~~~
cdrux
At this point there is nothing to me that would suggest that it should.
Obviously over time the idea of a true international currency would be
beneficial. But something like bitcoin that was created by a random individual
with no government support, no inherent or scarce value shouldn't be able to
hold value.

To me it is irrational to put money behind bitcoin, it's a bubble like the
Dutch Tulip Mania from the 1600's. No reason for it, and it won't last.

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rrrrtttt
Neither. It's not a currency because you can't use it to buy products and
services (other than drugs and socks). It's not a commodity because it's not a
raw material or agricultural product.

~~~
clone1018
Yeah, Bitcoins can only be spent on drugs and socks. Totally,
<https://en.bitcoin.it/wiki/Trade>

Just FYI, there are 1298 merchants on that page :)

~~~
3am
BitPay doesn't coun't. The merchants are all accepting whatever currency
BitPay converts into.

I'll sell you my car for a sack of turds, assuming someone will exchange it
for $15K and hand me the cash first.

~~~
vbuterin
Well, using Bitcoin as a means of transferring USD is a perfectly legitimate
use. It even has lower fees than credit cards and Paypal these days, exchange
fees included.

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dageshi
Commodity that can be used as a currency, same as gold.

In fact I'd say that's what bitcoin is, digital gold. Just as gold still
remains an important holding for central banks, I have to wonder if at some
point a second digital/crypto currency will be developed that somehow uses
bitcoin as its stable base/commodity but which solves the issues that all the
economists are whining about.

~~~
tiemand
I think thats an interesting perspective. Just as gold is a finite quantity so
will Bitcoin be a finite quantity when it reaches 21Mil coins.

I can imagine that in future Bitcoins can be used as a "reserve" currency that
backs another currency

~~~
Jtsummers
A major problem with BTC as a reserve currency is the way it is generated
(mining) and reclaimed (fees). An entity with significant computational power
would be able to maintain significant control over the reserve currency. It's
feasible that early adopters, then, would be holding significant percentages
of the reserve currency. What would motivate later adopters to convert when
they have perfectly viable reserves already (gold, USD, etc) that's more
equitably (well, from their perspective at least) distributed?

Second problem, it requires a major shift in the motivation of many adopters
(anti-fiat, anti-fractional reserve banking).

~~~
GaryRowe
Bitcoin is a protocol. There is nothing stopping the UN from creating their
own currency using the Bitcoin protocol with all the characteristics they
require of a reserve currency.

~~~
Jtsummers
It's also a thing that is attempting to be a currency/commodity. I suppose in
any discussion we should make clear which aspect we're talking about. I was
talking about the currency/commodity aspect as that's what this entire thread
was started on. For the protocol, I agree with you.

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leashless
"Commodity" and "Currency" are - before the law steps in - more or less
arbitrary descriptions of human behaviors with extremely poorly-defined edges.
Cigarettes are clearly a currency in jail, but they're a commodity pretty much
everywhere else.

Once the law steps in - and it will - bitcoin is whatever the hell they say it
is, in a court of law, which is the only place these definitions really
matter. FINCEN has an opinion already, but that's just one part of one
government. The consensus will take time to settle. For my money while mining
is still possible, bitcoin is a commodity. After that it's something new, like
a currency, but with a permanently inflexible monetary policy. That's never
happened before, so what it will be, we just don't know.

[http://arstechnica.com/tech-policy/2013/03/us-regulator-
bitc...](http://arstechnica.com/tech-policy/2013/03/us-regulator-bitcoin-
exchanges-must-comply-with-money-laundering-laws/)

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iwwr
It's a speculative commodity, which, if gaining enough traction and liquidity
could provide a viable alternative for a currency.

~~~
samwillis
I don't believe it is a commodity as it has no inherent use other than as a
currency based on the value people are willing to give it. Gold (and almost
anything with a physical presence) is obviously a commodity as it has a use
(for making stuff) other than its value.

BitCoin only has a use because of a value associated with it and so it is a
currency.

~~~
danpat
Gold's practical value is a small fraction of it's going price.

Bitcoin has some utility value in being a digital good that you can reliably
exchange with someone, essentially instantly, over the internet, with no
middle-man, for a very low cost.

Sure, this might seem like a trivial value, but I think it's value
nonetheless, and overpricing of something like that is not unprecedented.

~~~
betterunix
If Bitcoin's only utility is its ability to be transferred from one person to
another, it is _not_ a commodity.

~~~
GaryRowe
But it has built-in scarcity which means it possesses a characteristic of a
commodity. Maybe a bitcoin is currmodity?

------
betterunix
Neither, it is just an experiment by cryptoanarchists to see if currency
without any authority is even possible.

~~~
illuminate
And to that end, even the snarkiest snarker should be able to agree that it's
been fascinating watching it change as different persons, interests, and
ideologies interact with it.

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epaga
I just bought a song on <http://www.coindl.com> and was very, very impressed
with how smoothly and quickly I was able to buy the song and download it
_without creating an account_.

This proves to me that Bitcoin definitely could become a useful currency, but
for this to happen it will have to become more stable. Until that happens, it
will remain a highly speculative commodity with a neverending cycle of bubble
and crash.

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LukeHoersten
I think the really interesting topic is whether or not a currency can work
without being at least slightly inflationary. At a specific point, all the
bitcoins will be mined so people will be/are incentivized to hold on to
bitcoins instead of spending them.

Also, there are two general groups of commodities: renewable and nonrenewable.
To be specific, we're talking about a nonrenewable commodity here.

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smurph
Right now I would say it is a commodity. I think the majority of people
getting into bitcoin right now are doing it either for emotional reasons or
because they have enough disposable income to play with it. I don't think I
could convince my mom or dad to start using bitcoin, or even just a stranger
on the street. It's still just a novelty for nerds.

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stevewilhelm
Bitcoin is a service for making anonymous transfers of fiat currencies,
typically US dollars, for goods and services. It's ideal for purchasing
illegal or controlled substances.

Recently, it has also become a popular mechanism to make small, relatively
volatile speculative transactions for financial gain.

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apaprocki
There is a disconnect between what people commonly think a currency is and
what _laws_ state a currency is. Regardless of what people feel like Bitcoin
should be classified as, it will never be classified as a currency in the eyes
of the law written around foreign exchange until it is legal tender in a
recognized nation. If that ever happens, then the entire existing body of laws
written over decades revolving around the FX market will formally apply.

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Piskvorrr
Being protected by law doesn't help it any - many currencies have failed
despite such protections. The volatility is the real issue; as long as the
value fluctuates wildly, it won't be useful as currency (and vice versa!).

~~~
legitsource
If it becomes more widely accepted to purchase tangible goods and services, do
you think the value will continue to swing wildly?

In some aspects, I would think that would moderate the pricing, since at the
moment it's not good for that much else for most people other than speculation
and cashing in/out as needed.

~~~
ProblemFactory
Yes - but only if the merchants set fixed prices in bitcoin, rather than "$20
USD, transferred via bitcoin". Which they won't be able to do until their
suppliers, employees and taxes can be paid in fixed number of bitcoins.

More merchants via instant-USD-conversion will certainly increase the
popularity of bitcoin, but won't help at all in giving it a moderate value in
tangible goods and services.

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manidoraisamy
The name Bit'coin' suggests it is a currency. But it trades like a commodity,
even though it doesn't fall under "goods" that satisfy wants/needs. Bloody
confusing for me!

