The economic and legal nature of Bitcoin is one of the most hotly debated topics between professional economists and legal scholars in crypto.
The question doesn’t elude the regular crypto userbase either.
Economists’ main concern is whether Bitcoin can – in the first place – be regarded as money. If it can — is it more like a commodity or a currency?
Lawyers and regulators, on the other hand, grapple with the same question but approach it from a different angle.
For them, drafting new crypto regulations and analyzing existing ones is impossible without first addressing the economic/legal nature of Bitcoin. Taxation, property and intellectual rights all depend on this.
Is Bitcoin Money?
This question is rarely a concern for the regular crypto user. For them, Bitcoin is arguably the best digital form of “hard money.”
This question is more of an issue from a theoretical economic standpoint.
During the period Bitcoin has existed many economists have argued many different things, but what matters now is that the current general consensus amongst everyone is that Bitcoin is indeed money.
Money, or better yet moneyness — is not a thing, but a feature. We say that something is ‘money’ if it can be used as a unit of account, a store of value, and a medium of exchange.
Historically, anything from cowry shells to large stones and objects made out of precious metals such as gold or silver coins have been used by humans as money.
When it comes to the moneyness features of Bitcoin, the medium of exchange and unit of account remain largely undisputed. The one thing that’s still discussed among a small fraction of economists is whether a highly volatile asset such as Bitcoin can be considered a good store of value.
Some say yes, others say no, but theory aside — Bitcoin today is de facto and de jure money.
Everyone that uses it accepts it as money and courts in most jurisdictions around the world affirm – through their legally binding decisions – that it is money.
Is Bitcoin a Currency?
The jury is still out on this one.
Money and currency are not the same. All currency is money, but not all money is currency.
For a form of money to be considered a currency, it must circulate or pass from hand to hand without third-party verification. One way to picture the difference between circulating and non-circulating money is to contrast checks, which don’t circulate without first going through a bank, with dollar bills — which do.
In that regard, whether a particular form of money fits the definition of currency isn’t all that clear. Some economists believe that, in addition to the above criteria, for money to be a currency it must be legal tender — that is, it must be recognized by the state as a satisfactory payment for any monetary debt.
From a practical standpoint, Bitcoin perfectly fits the definition of currency as “money which circulates,” and rarely anybody argues against that. However, the problem lies with the fact that, in the vast majority of world jurisdictions, Bitcoin isn’t recognized as legal tender.
From a legal standpoint, most world jurisdictions regulate (largely depending on the circumstance) Bitcoin either as property or as a currency and/or commodity.
For example, in the U.S., for tax-related purposes, the IRS treats Bitcoin (and other digital currencies) as property. In contrast, the CFTC treats Bitcoin as a commodity covered by the Commodity Exchange Act (CEA).
Moving across the ocean, The Court of Justice of the European Union sees Bitcoin as “means of payment” and rules that, for value-added tax (VAT) purposes, Bitcoins should be treated as currency.
We can, therefore, conclude that the term “cryptocurrency” is unfortunate and largely misleading.
Bitcoin is best thought of not as a currency, but as a scarce digital asset more similar to other scarce commodities such as gold or silver.
Is Bitcoin a Commodity?
It depends on the jurisdiction.
From a purely economic standpoint, Bitcoin resembles a scarce digital commodity more than it does anything else — be that a digital currency or a stock.
The CFTC in the United States is in line with this and sees Bitcoin as a commodity covered by the Commodity Exchange Act (CEA).
Most other jurisdictions simply treat Bitcoin either as money or currency or don’t enact any laws specifically regulating it at all.
Is Bitcoin a Stock?
No, Bitcoin is not stock. Neither from a practical nor from a legal perspective.
Stocks are securities that represent an ownership share in a company.
Bitcoin is a decentralized scarce digital asset. Owning Bitcoins doesn’t represent ownership over any legal entity – company or corporation.