Bitcoin has certain characteristics that traditional currency or fiat money does not have. These novel characteristics of money can be advantageous for users who want an alternative form of currency.
Some common characteristics of traditional currency include fungibility, divisibility, and acceptability. Bitcoin extends the features of money with new characteristics. Bitcoin is not perfect in all the characteristics of money, but it certainly has some features that gives it an advantage in the Digital Age of currency.
Decentralized Currency
Bitcoin is not issued by a state or entity, meaning it is not fiat currency. As a cryptocurrency, Bitcoin issuance is through a process called mining. It is a decentralized network that provides utility to users to transfer value and secure their transactions. It is through the network of users that Bitcoin or BTC is created. It is this characteristic that makes BTC free from hegemonic control and independent from financial control by any entity (e.g. state, corporation, individual), making borderless and permissionless money.
Public Ledger Accountability
Bitcoin uses a blockchain, which is a form of distributed ledger technology (DLT) which stores information that is protected by a decentralized network of nodes. All data stored is transparent, meaning it is viewable to the public. This provides accountability of all user transactions that can be audited and tracked. It tracks all digital assets, or the bitcoins that one owns, with provability recorded on a ledger. Transparency is an important characteristic that helps to discourage dishonesty and corrupt practices in a monetary system.
Censorship Resistance
The Bitcoin payment network does not screen transactions. Users are free to transact directly in a peer-to-peer manner. No institution can stop a transaction or freeze an account because they do not have control of it. Permission from a trusted central authority is not required, giving users more financial freedom in how they want to use their money.
Tamper Proof
Bitcoin transactions are final and immutable. That means it cannot be modified or deleted once it has been recorded on a blockchain. The transaction is a provable record stored in a cryptographically secured database. This makes it impervious to manipulation of data, which deters bad actors.
Self-Custodial
You can take full custody or ownership of your money using Bitcoin. It does not require a third party to store your funds. With a personal digital wallet a user holds a private key, which controls the use of money making it harder to confiscate unless by physical force. If a user loses their private key, they will not have access to their money, so it is important to keep it safe and secure. Taking custody means more responsibility for users to safeguard their assets.
Programmable
Bitcoin is programmable money. Using Bitcoin Script, users can create multisig wallets in which more than 1 user is required to approve a transaction. This can be used to manage trust when it comes to funds. Bitcoin scripts are not as complex as other applications, but it does provide some ways for users to program their transactions.
Pseudonymity
While cash offers stronger privacy through anonymity, Bitcoin offers pseudonymity. Being pseudonymous allows for a degree of privacy while still within regulatory compliance. That is because Bitcoin addresses can be associated with a user's identity on digital exchanges. This allows users to comply with KYC/AML regulations which must identify users who are converting cryptocurrency to fiat and vice versa. It is required by law that users of exchanges submit their personal information in order for regulators to track their transactions for illicit activities. Tracking addresses to a user on an exchange is part of the transparency feature of Bitcoin.
Synopsis
We can view Bitcoin as the new form of money, or the future of money. It adds new characteristics to money, through its purely electronic and digital implementation. Money was never programmable before, and it surely was not something we can own. Money was state issued and controlled by banks.
Perhaps the novel characteristics of Bitcoin as money is the value of the technology it provides for users. We have to look at currency as a tool that can help users not only purchase goods and services, but to secure their transactions and protect their wealth.
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Disclaimer: This is not financial advice. Information provided is for reference purposes only, and all opinions shared are the author’s own views. Do your own research always.
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