Is Cryptocurrency Real Money?

To understand why Bitcoin achieved success as a digital currency, it is useful to look at why cryptocurrency can be considered "real money." The concept of money can appear deceptively simple; after all, beads and shells were used as currency in the past. However, cryptocurrency faced significant skepticism in its early years, with enthusiasts even jokingly calling Bitcoin "magic internet money."

To be considered believable and acceptable as a form of money, a currency must meet the criteria of sound money. For a currency to be considered sound, it must possess several specific traits. Gold and fiat money (like the US dollar) both share these characteristics.

The Six Traits of Sound Money

Let's look at gold as an example to see how it compares against the essential traits of sound money:

• Durable: It must be almost indestructible. It is practically impossible to destroy gold.
• Divisible: It can be broken down into smaller units. Gold can be broken down into tiny grains.
• Portable: It must be easy to transport. While gold ingots are heavy, gold coins are fairly easy to carry around.
• Fungible: Each unit is identical and interchangeable. An ounce of gold will always be exchangeable for another ounce of gold in any shape or form.
• Scarce: It must be difficult to create. Gold is remarkably scarce and can only be mined in limited quantities throughout the world.
• Accepted: It must be widely and easily accepted. Gold has been universally accepted for centuries, bridging cultures and languages.

Evaluating Bitcoin

Now that we have established the traits of sound money using gold as a benchmark, let's look at Bitcoin as a cryptocurrency and see how it measures up to these same standards.