1)Does bitcoin fulfill the three functions of money and the six characteristics of money? 2)What is...

1)Does bitcoin fulfill the three functions of money and the six characteristics of money?

2)What is bitcoin?

3)Do you think bitcoin or some other type of currency will be the future of money? Why and what other types of money will evolve?

Solutions

Expert Solution

Q.1.

There are three main functions of money - medium of exchange, store of value and unit of account.

Medium of exchange to facilitate transactions - satisfied by bitcoin
Store of value - In order to be a medium of exchange, money must hold its value over time but with high fluctuation, bitcoin can’t be used for storing value and paying debt - Not satisfied.
Unit of account - a common measure of the value of goods and services being exchanged - satisfied.

Six characteristic of money -

Durability - Bitcoin is completely digital, so it will not degrade with use.
Portability - Bitcoins are easy to carry and transfer.
Divisibility - BTC is perfectly divisible (currently divisible up to 8 decimal places)
Uniformity - BTC is uniform. Currently, all bitcoin are considered equal.
Limited supply - The supply of bitcoin is tightly controlled and highly predictable.
Acceptability- Bitcoin is only accepted by a small fraction of web sites currently. While this number grows on a daily basis, it is still the vast minority of merchants.

Rahul Sunny answered 11 months ago

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