I CONTINUE to be amazed at the phenomenon of the bitcoin (“You can buy bitcoins at South Station,” Business, Feb. 20). I can understand the gambling aspect. People risk millions every day on lottery tickets, online gambling, and casino games. I’m shocked that many people consider bitcoins to be money even though they meet only one of its functions, in a very few places.
Economists define one of the functions as “medium of exchange.” This means someone will accept the currency in payment for goods or services. According to the Globe article, some local restaurants and Overstock.com will accept bitcoins. It’s money to them, but not to the rest of us.
Here’s another definition of money: “store of value.” That means that if someone puts money in a mattress for a couple of years, it will still have value when she or he takes it out. If I had bought a bitcoin in November for $1,242 and then last Wednesday I cashed it in for dollars, I would have gotten only $630 back. Had I kept the $1,242 in that mattress, it would still be worth $1,242 six months later, minus a dollar or so for inflation. Bitcoins are terrible as a “store of value.”
And how about “standard of deferred payment,” another definition of money, which means that if someone signs a contract to receive a payment in the future, that payment will still be worth about the same as it is now. If I loaned someone bitcoins worth $1,242 in November, the borrower could pay me back with bitcoins worth $630 today. That’s not my kind of “deferred payment.”
Don’t get me wrong. I will probably go to the ATM at South Station and buy a bitcoin so I can say to my friends that I have one. I might even buy some for speculation in the same way that I buy Canadian mining stocks. But as “money,” it’s not even close.