If Bitcoin Is Not Money, What Is It?

Since Bitcoin got off the ground a few years ago, there have been squabbles among adherents of the Austrian school over whether the decentralized cryptocurrency is money, adding one more to the umpteen schisms already in the Austro–libertarian camp. Jeffrey Tucker is an unrelenting starry-eyed proponent of Bitcoin and considers it a way to live outside the State. Nielsio, the Dutch anarchocapitalist of V for Voluntary fame, on the other hand has a series of videos warning viewers not to buy Bitcoin because it is a baseless currency that fails to improve upon fiat money and is bound to crash—unlike gold.

The debate (if it can be called that), then, is one between the silver-and-gold old school and those futurists who attempt to revolutionize everything with new gizmos. One of the more shallow critiques from the former group is the simple assertion that, unlike gold, silver and other commodities, Bitcoin, just like fiat money, has no intrinsic value. To this, one ought to point out that nothing has intrinsic value; all value is subjective. Austrians of all people should be the last to forget this concept, as it was discovered by Carl Menger, founder of the Austrian school.

A more thoughtful critique harks back to Ludwig von Mises’s “regression theorem.” All money must have an origin. As Nielsio’s video explains, in order for good X to gain acceptance as payment for other goods, those who are trading away, say, vegetables would have to see that X has value, otherwise no trade would be made and X would never become a medium of exchange as people will not trade their valuable goods for another’s valueless goods. Thus, before a good can have value as money, it must have value as a consumer or producer good. Gold has many obvious uses and so people would be willing to accept it as payment. Bitcoin, however, has no use outside of being traded and so, argues Nielsio, it cannot be money.

In 2010, Bitcoin’s pseudonymous creator Satoshi Nakamoto (who this blog has pointed out is likely a man named Nick Szabo who is well-steeped in the Austrian method) took to the forums to respond to the Regression Theorem critique. He wrote,

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: boring grey in colour, not a good conductor of electricity, not particularly strong, but not ductile or easily malleable either, not useful for any practical or ornamental purpose, and one special, magical property: can be transported over a communications channel.

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some.) Maybe collectors, any random reason could spark it.1

And that seems to be exactly what happened with Bitcoin. When the first Bitcoin transaction of 10,000 BTC for two Papa John’s pizzas took place in May 2010, the cryptocurrency did not have any market value nor any value as a consumer or producer good. It was just a neat thing you could do on the Internet. Bitcoin did have value, though. It had subjective value to these two brave pioneers in that it provided them with pleasure just to conduct transactions using it. Surely, many of the first Bitcoin transactions took place for this reason. As Satoshi points out, that is the only spark it needed. Mises once wrote, “If a man drinks wine and not water I cannot say he is acting irrationally. At most I can say that in his place I would not do so.”2 Likewise, one cannot say that trading a pizza for ten thousand Bitcoins is irrational, only that he would not make this trade.

The Bitcoin protocol is currently averaging about seventy thousand transactions daily.3 This fact seems to fly in the face of the idea that a good, no matter how scarce, that has no use in production or consumption could never gain acceptance as money. Of course, this number pales in comparison to the number of transactions that take place in U.S. dollars alone each day.

This brings us to another question: Is there a real definition of ‘money’? At what point does a consumption good become money? During the weekend of this year’s International Students for Liberty Conference, while waiting entirely too long to be seated at Chinatown’s Matchbox pizza joint, a professor of mine and I discussed the latter question. He was arguing that Bitcoin was not money, at least not yet—it needed more widespread acceptance. I argued that setting any sort of threshold for determining what is money and what is not is necessarily arbitrary. He responded by pointing out that there is no single moment where day becomes night, but we all accept that day and night exist. Similarly, we accept that U.S. dollars, accepted as payment by hundreds of millions of people, are money, but that Uni-Ball Vision Elite pens are not money, despite being the world’s greatest and most affordable writing utensil.

If we limit our scope to only certain communities, Bitcoin certainly qualifies as money. If limiting the scope is not to be allowed, then the Icelandic króna certainly is not money either. The boundaries of the cryptocurrency’s use are not geographical, they are traced in cyberspace. And how do Bitcoin’s seventy thousand daily transactions compare with purchases made using precious metals like gold and silver? If an Austrian denies that Bitcoin is money, he cannot be consistent in insisting that gold is money.

Even if one does not accept that Bitcoin has the widespread acceptance needed to be considered money, one must accept that the currency is headed in that direction. Online retailer Overstock.com and Dell, one of the world’s largest tech companies, now both accept Bitcoin as payment. Neither accept gold.

The cryptocurrency’s significant and growing user base—and its resilience—shows us that value need not regress to value in consumption or in production. It urges us to reëvaluate what value really means and just how subjective it is. Bitcoin’s original value was in being “consumed” as an Internet tinkertoy, and that is all it takes. If it is not money, Bitcoin is metamoney. Not only is it durable, divisible and noncounterfeitable, it can be transported to the other side of the planet almost instantly. It is more money than money has ever been, and it challenges not just money as it exists but the theories of money as well.


  1. https://bitcointalk.org/index.php?topic=583.msg11405#msg11405.
  2. Ludwig von Mises, Socialism: An Economic and Sociological Analysis (New Haven: Yale University Press, 1962), 448.
  3. http://blockchain.info/charts/n-transactions.

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