What Is Bitcoin?
At its most rudimentary value, bitcoin is digital money — a digital money that can be sent to anyone in the world, unconstrained by borders.
While there are many individual properties that make up an asset’s value as a form of money, a fundamental concept surrounding money is its use as a medium of exchange.
If someone is selling a good or a service, and another individual would like to pay them, the good that is used as payment is considered the medium which facilitates that exchange. It is a way for one party to gain access to something that they value, by providing the other party with something that they value as well.
While its use as a medium of exchange is money’s foundational value, an individual’s decision to utilize a particular medium as money is dependent on multiple factors, all of which encompases that good’s effectiveness as a medium of exchange.
These factors include: portability, durability, divisibility, and fungibility.
Every bitcoin in existence is a piece of data that cannot be duplicated. Bitcoins are portable, as this data can be sent by anyone with an internet connection at any time. They can also be held easily on a smartphone, or many other means of simple physical portability.
Bitcoins are durable. They cannot be destroyed, tampered with, or eroded. Bitcoins are divisible. A single bitcoin can be divided down to eight decimal places, making 0.00000001 BTC (also known as a Satoshi) the smallest unit available. Bitcoins are highly fungible, meaning that every bitcoin that exists, to a large degree, is indistinguishable from all other bitcoin. Because of this, all bitcoin in the network can be used in the same manner.
From these factors, both the properties of unit of account and store of value are born. A unit of account is a way of denominating goods and services, so that the market can measure the value of a particular good or service. For example, we could pay $10 for a good, which uses the United States Dollar as the unit of account. This good is measured at $10 worth of value.
Additionally, a store of value is something that someone can hold onto for the long term, and expect that the particular good will not have gone down significantly in value.
While the price of bitcoin does continue to fluctuate, and the majority of market goods are not priced in BTC, unlike the other properties of money mentioned, these particular functions cannot be programmed. These functions are based on human behavior. More specifically, they are based on individual choice and perception of the effectiveness of this good to be used as a medium of exchange.
This choice is supported by the underlying network which enables users to transact with that medium. Price stability and denomination of goods is something that can only be achieved over the long term, as more people begin to utilize that particular medium.