 |
| Bit Coin: Not yet a currency |
Merriam Webster defines currency as:
a
: something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange
b
: paper money in circulation
c
: a common article for bartering
-- furs were once used as a currency
d
: a medium of verbal or intellectual expression
In order for something to be considered a medium of exchange, it must be liquid. Meaning, I could take this something and immediately turn it into another good or service - like a dollar. I could take a dollar and immediately turn it into say, Michelin Pilot Sport Cup tires for a Mitsubishi 3000GT VR-4.
 | |||
| Dollars --> Michelin Pilot Sport Cup Tires |
But I can't exchange Bit Coin for racing tires, and neither can you. In order to do this, the Bit Coin must first be exchanged for dollars (like via the coin exchange coinbase.com) and then the dollars are used to buy tires. That extra step in between means that Bit Coin is not liquid, it is semi-liquid - like owning shares of Ford Motor Company.
 |
| FoMoCo Shares - A Semi-Liquid Asset |
I could take shares of FoMoCo, sell them on an exchange, like the New York Stock Exchange, for dollars then buy those racing tires. A lot like Bit Coin and the exchange Coinbase. But then there is another factor, exchange volatility. Shares in FoMoCo are volatile, yes, if I bought a share at $12.60 at the beginning of January, I could sell it for $13.20 today. Woohoo!
Or worse, if I sold a share of FoMoCo at the beginning of January to buy tires - I just lost 4.762% and perhaps I should have held onto that FoMoCo share for another week. But how could I have known the future value? I can't. It's a risk.
With Bit Coin, the volatility is even worse, and it's why you can't go down to Tire Barn and exchange your Bit Coin directly for Michelin tires. If I exchanged my bit coin for cash on January 1st, I'd take a 17.17% loss (read: kick to the nuts) relative to the value a week later. No business in their right mind would deal in such a volatile currency. At that rate, we may as well be exchanging shares of FoMoCo instead of Bit Coin.
 |
| Bit Coin: Too Volatile Too Furious |
"But Axle," you say, "Company XYZ accepts Bit Coin!" You're right, they do - on some limited basis, with the intent of getting free advertisement for their company when the tech blogs post about it because it's the flavor of the week. One company accepting the imaginary coins does not make it a currency.
 |
| Bit Coin: Too Volatile to be a Currency |
So what did we learn? A currency must be liquid, it must be stable in value, and it must be capable of being readily exchanged for goods and services. Bit Coin is none of these things. But hey, what do I know? Want to buy some Tulips? I hear there is a finite quantity of them in circulation in a given season and demand can only go up!
 |
| If you think Bit Coin is a currency, I've got some tulips to sell you |
- Axle
