Bitcoin vs. USD: Understanding the Differences

Bitcoin almost reached $20,000 in December 2017, capturing the world’s attention. Although it has to offer more than the possibility of high returns, the mass media noise helped attract more attention to this asset. Nevertheless, many still need to determine what distinguishes Bitcoin from traditional fiat money, such as the United States dollar.
 
WHAT IS MONEY?

Money is the form of a social agreement. Society agrees that everything can be money—the medium of exchange, store of value, or unit account. If people use Bitcoin to pay at the grocery store, it is money. There are many advantages to digital currencies, and general acceptance is a matter of time.

Key Factors to Boost Bitcoin Demand Beyond the US Dollar:

A few other things need to happen to make Bitcoin more demand than the US dollar. Firstly, although it does not seem so, Bitcoin is already rapidly accepted. Secondly, the changes must be seen in three areas:

1. Volatility.

Historically, Bitcoin has been much more volatile than the dollar. However, as Bitcoin exchange volume rises and new platforms such as Bakkt become available, Bitcoin’s volatility is expected to decrease (“Figure 1.4 shows the Bitcoin 30-day annualised volatility”).

2. Scalability. Bitcoin currently takes about an hour to conduct a transaction. The development of the Lightning Network aims to change that.

3. Adoption.

Lastly, more people are using Bitcoin as a payment method. a.  Bitcoin price volatility Although Bitcoin does not seem that different from the dollar, according to Waterfalls, Stephens comments, Since Bitcoin lacks the support of a state, it has no force to accept  payment.” A dollar only has value because people trust it. However, if people trust Bitcoin more than their government, it can become a popular alternative.

Although Stephens comments that the state does not back Bitcoin, Goodhart’s two concepts of money say the following: Governments have always regulated monetary systems because they use them to collect taxes. Private money, like Bitcoin, may require government support to achieve general acceptance. Because people always trust a consistent, formally issued currency more than a coin or informal one, it is reasonable to expect the same outcome with Bitcoin because of its security and verification issues.

To conclude, Bitcoin is an exciting innovation that invites scrutiny into how money is measured. However, putting money into Bitcoin’s idea is a risky innovation.

Goodhart argues that private money always fails, and states always ensure it will.