is cryptocurrency a medium of exchange if not legal tender

When I first heard of Bitcoin, it sounded like something out of a dystopian sci-fi novel. Digital, cryptographic, uncensorable money? It would mean investing into Bitcoin would be like funding a revolutionary army. It would be so subversive, only a few crazy people would be willing to do it.

Grandmothers now own Bitcoin. And with a few notable exceptions namely China and India , world governments have been surprisingly welcoming toward cryptocurrencies. Bitcoin is legal almost everywhere. Bitcoin was supposed to be the enemy of governments. Indeed, Bitcoin was supposed to erect nothing less than an uncensorable shadow financial system. But this explanation falls short. First of all, we already have blockchains. If the purpose of letting Bitcoin flourish was to usher in the age of enterprise blockchains, its job is already done.

Perhaps governments are pattern-matching blockchains with the Internet. A wait-and-see approach to internet regulation was clearly instrumental to its flourishing, and perhaps governments intend to do the same here. But governments have also fought tooth and nail against end-to-end encryption, P2P filesharing, privacy technologies like Tor, and financial networks that enable tax evasion see e-gold and global financial surveillance policies like FATCA. If Bitcoin threatens the power of financial surveillance, then it would be considered far more dangerous than any of these prior technologies.

Governments can certainly sometimes be reactive and short-sighted. By and large, the strongest world governments are thorough and ruthless at identifying and neutralizing threats to their power. Neither of these explanations are satisfying. So that leads me to the third and perhaps most radical possibility:. In fact, Bitcoin might just be the most sovereign-friendly cryptocurrency.

Bitcoin is often described as an anonymous cryptocurrency, but this is incorrect. Bitcoin is actually pseudonymous. The distinction is crucial: under a cryptographic pseudonym, your behavior can still be tracked. How is this done? It starts with the fiat onramps, where an exchange collects information on you through their KYC process.

This information that is often shared with other exchanges when investigating suspicious activity. Even once take your Bitcoin onto the mainnet, your activity can still be tracked. Heuristics and clustering analysis are often used to identify exchanges, mixers, and other common blockchain services you use. Supernodes connect to large swathes of the Bitcoin network and correlate transactions with their originating IPs.

Often you will be turned away if your Bitcoin appears tainted by signs of illegal activity. This is more than hypothetical. We saw this with the Mueller Probe and with analysis of the Mt. Gox hack.

For the average person, this is probably not a big deal. But consider: how is this any different from other systems we use? Most people feel their cell phone conversations are private.

But in the back of their heads, they know that their phones could be tapped or their phone provider subpoenaed. We take solace that this surveillance is unlikely and usually requires a significant legal threshold.

And yet, we know not to be surprised if someday our phone calls are replayed before a jury of our peers. Bitcoin falls into the same security model. One could even argue that Bitcoin is less private than using an overseas banking system. The U. But everything on the blockchain is visible all the time. What a gift it would be to the US if every foreign financial institution made their transactions public on a blockchain!

But a facade of privacy is more dangerous than no privacy at all. The more safe and empowered citizens are convinced they are, the more the state is free to accrue real power over them. This is the first reason Bitcoin is sovereign-friendly. I once believed that if Bitcoin truly succeeded, it would become a global currency. Every economy in the world would be united by their usage of Bitcoin as a new global cryptographic money. This is both because Bitcoin cannot be a worldwide currency, and because Bitcoin can succeed without becoming that worldwide currency.

Classically, a currency must act as a medium of exchange, a unit of account, and a store of value. Bitcoin is unlikely to become a global currency for several reasons, each of which could be an essay on their own. But in short: Bitcoin has too high latency, too low throughput , and its divisibility is too low due to the rising dust limit currently about 3c USD for non-Segwit transactions.

If it came down to it, and central banks felt a digital currency posed enough of a threat, they would happily incentivize or mandate usage of their own currency in order to maintain sovereign monetary policy. This is especially true in the first world. Putting the two side-by-side, our current financial system is far ahead of the UX of cryptocurrencies though I eagerly await the day that changes. So Bitcoin is not suited to be a global currency. But Bitcoin can still succeed!

Note, Bitcoin becoming a form of digital gold is still a long ways away. To say nothing of their relative volatility, the market cap of gold is in the trillions of dollars. But sovereigns are not principally concerned with protecting the status of gold except insofar as they hold some amount of gold in reserves. A disruption in the worldwide store of value would not be a significant threat to their power. Then it could support a rich on-chain economy, and its users might be able to conduct their financial lives on a parallel, uncensorable economy.

But Bitcoin has proven to be a poor medium of exchange, and there are few substantial businesses built entirely on Bitcoin. As a store of value, the story is much simpler. The flow of Bitcoin usage must begin and end with fiat currencies, bottlenecked at off-chain exchanges like Coinbase or Bitfinex.

Bitcoin is also unable to support DEXes or easily interoperate with other blockchains. This forces markets to consolidate around these off-chain exchanges. This is provides a neat explanation for why India and China have been the two major countries to ban crypto.

Both have strict capital controls and burgeoning middle classes, itching to escape the local currency. Their primary concerns are around economic protectionism and preventing capital flight. Both India and China also have strong restrictions on gold imports.

To countries unafraid of capital flight, a store of value poses less of a threat. But a medium of exchange is scary to governments. They might even call it innovation. It might sound like this article is ragging on Bitcoin. This is an enormous advantage in becoming a store of value. You see, almost every other cryptocurrency that exists today can be pinpointed on a map. It was concocted by a single mind or a few minds. We know where they come from, where they live, and where they are evangelizing the project.

Bitcoin is the only exception. Its pseudonymous creator, Satoshi Nakamoto, is now an apparition. Bitcoin belongs to no one, and it relies on no one. If all of its developers were rounded up and thrown into secret prisons, its development would continue under another set of names. This also implies that if a government were to throw its support behind Bitcoin, it would not cede power to any other country.

This fact is under-appreciated. This legitimization would consolidate it as a true digital gold. I suspect not. These are companies, earthly organizations with headquarters and identifiable leaders. The founders walk around. They have plans, they change their minds. They have passports and allegiances. Ethereum is strictly of this world. Bitcoin, on the other hand, is from nowhere and everywhere: all countries can see their own reflections in Bitcoin.

Americans see the Bitcoin Foundation and many Core developers as American. Japanese see Satoshi Nakamoto as one of their own, and thus Bitcoin as one of their inventions. The British claim that Satoshi was likely of British origin. The Chinese claim they control the mining industry and hardware that secures Bitcoin.

is cryptocurrency a medium of exchange if not legal tender

Scotland’s Legal Currency Which Isn’t Legal Tender

This plan will then provide a structure for your answer. Cryptocurrency is an intangible digital token that is recorded using a distributed ledger infrastructure, often referred to as a blockchain. These tokens provide various rights of use. For example, cryptocurrency is designed as a medium of exchange. Other digital tokens provide rights to the nlt other assets or services, or can represent ownership interests. These tokens are owned by an entity that owns the key that lets it create a new entry in the ledger. Xryptocurrency to the ledger allows the re-assignment of the ownership of the token.

As demand for cryptocurrency grows, global regulators are divided on how to keep up. Most digital currencies are not backed by any central government, meaning each country has different standards. Every seemingly small regulation announcement has driven the price of bitcoin and other cryptocurrencies in Here's your guide to where digital currencies stand with governments and regulators around the globe. At a G meeting this month, Argentina's central bank governor outlined a summer deadline for members to have "specific recommendations on what to do" and said task forces are working to submit proposals by July. Italy's central bank leader told reporters after the meeting in Buenos Aires, Argentina, that cryptocurrencies pose risks but should not be banned, according to Reuters.

is cryptocurrency a medium of exchange if not legal tender

Commodity money vs. Fiat money - Financial sector - AP Macroeconomics - Khan Academy

Global regulators

M1 is M0 plus demand deposits like checking accounts. The founders walk. Treasury Secretary Steven Mnuchin has been vocal about bitcoin's ability to aid criminals, telling CNBC in Davos in January his main focus on cryptocurrencies is "to make sure that they're not used for illicit activities. Personal Finance. Bitcoin Mining. Code Section Similar to Dark Wallet, Darkcoin combines transactions to increase the difficulty of analyzing where the currency was sent. The Federal Reserve System the central bank of the United States distributes money through the banking. Under U. There has been a lot of talk about how to price Bitcoin and we set out here to explore what the cryptocurrency's price might look like in oegal event it achieves further widespread adoption. Draghi rejected Estonia's attempt to create a state-backed cryptocurrency called "estcoin. So that leads me to the third and perhaps most radical possibility:.

PREV: what made bitcoin skyrocket in 2020

NEXT: how to get a wallet to buy cryptocurrency