In the intellectual debate that rages around Bitcoin, one question arises again and again: “What is Bitcoin – a commodity or a currency?” The fact that it’s called a cryptocurrency suggests that its a currency; on the other hand, the terminology around Bitcoin (“mining” etc) suggests that it could be more akin to a commodity.
It’s not as philosophical a debate as it sounds. In order for governments to accept the legitimacy of Bitcoin, they’ve first got to get a handle on what it is. If it’s a commodity, it should be regulated as such; likewise, if it’s a currency. And right now, it seems like countries differ as to whether it’s a commodity, a currency or just an alternative asset class all of its own.
The fact that Bitcoin is currently accepted by thousands of merchants worldwide lends to the idea that it is a currency. The images of coins with the Bitcoin “B” only add to this impression and then, as noted above, there’s the name: Bitcoin, the ‘coin’ suffix suggesting notes and coins trading hands. However, as we all know, there are no physical Bitcoin notes and coins.
There are also other reasons which give doubt to the idea that it’s a currency. For one, it’s not backed by any government (yet). Secondly, there is no central bank (although, there is an argument to say that the issuers of Bitcoin are a central bank in all but name) and finally, unlike fiat currency, the ultimate quantity of Bitcoin is restricted.
What if Bitcoin is a commodity? Well again, there are similarities such as the limited quantity, standard output (one Bitcoin in the United States is the same as one Bitcoin in South Africa, for example) and in theory at least, stores of value. Maybe this is why in September 2015, the US Commodities Futures Trading Commission (CFTC) officially designated Bitcoin a commodity.
For what it’s worth, we believe that Bitcoin is neither a commodity nor a currency. Why does it have to be either? We limit our perspectives by looking to box it in one asset class or another. It’s like asking whether a smartphone is a computer, a camera or a phone. Well, it’s all three at once. And like Bitcoin, it’s revolutionary technology which we all stand to benefit from, regardless of how we choose to define it.