The Reason Bitcoin Isn’t Money

bitcoin (2)

You could buy a Domino’s pizza with bitcoin if you wanted to. A large pepperoni pizza will cost about $13. The cost to process the transaction with bitcoins will add about 88% to the price.

That’s right. You must pay to use bitcoins. This isn’t unusual. You also pay to use a credit card, PayPal or Square devices at the checkout counter. The difference is that the fees for the cryptocurrency are steep.

bitcoin

Transaction fees vary. Some payment processors charge less. With credit cards, fees are different for online purchases or when the merchant keys in the card number. But, credit card fees are always small.

On the other hand, the fees for bitcoin for everyday transactions are prohibitive.

Fees are high because transferring ownership of coins is expensive. Bitcoin is a digital currency. It exists only online.

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Transferring coins involves the blockchain, a futuristic technology that’s here today. This technology uses large amounts of electricity. It requires expensive hardware. Consumers must pay those costs.

The Future of Bitcoin

These high transaction fees don’t mean the cryptocurrency isn’t useful. Some merchants accept it to benefit from an image of high tech. Others accept it because it’s an excellent way to avoid scrutiny.

Bitcoin transactions can be anonymous. This makes the currency ideal for purchasing marijuana in states where it’s illegal. Where marijuana is legal, stores can’t accept credit cards, so the digital currency is more convenient than cash.

For any illegal transaction, bitcoin might be your best choice. For law abiding citizens, the cryptocurrency is for speculation and it’s unlikely to ever be money.

With that in mind, speculation in bitcoin can be profitable. But, digital currencies aren’t changing the way you shop.

Regards,

Michael Carr, CMT
Editor, Precision Profits

  • Steve Jenks

    Michael,
    You are only exhibiting your ignorance of the crypto space and misleading your readers in the process. While it is true that bitcoin has high transaction costs because of the way it was designed, that doesn’t mean it isn’t money. Think of it more like gold, which isn’t exactly something you would use to buy a coffee. Does that mean that gold isn’t a form of money?

    Besides, there are second and third generation crypto currencies that have solved the high energy use problem (some even have zero fees as a result). One or more of these cryptos will likely become the “money” for day to day transactions and bitcoin will continue to be a store of value similar to gold. Bitcoin could solve the high transaction costs by having the community agree to change the algorithms, but the big players want to keep it the way it is because (as you correctly pointed out) they have a great deal of money ******* in mining equipment and they want a return on investment.

  • Michael Carr

    I certainly didn’t mean to be misleading. Bitcoin may very well replace or stand alongside gold as an inflation hedge as reports from Zimbabwe seemed to indicate in that country’s latest bout of hyperinflation. But, as I concluded, “speculation in bitcoin can be profitable. But, digital currencies aren’t changing the way you shop.” That certainly seems to be true for now. Today, these are speculative and potentially profitable trading opportunities. They aren’t a way to order pizza and neither is gold. Neither crypotcurrencies or gold are money. That may change soon as you note and when it does, I hope I’ll recognize that. But, for now, I am stocking up on Jack Daniels as the ultimate disaster hedge. After an EMP attack, cryptocurrencies will be worthless and gold will be too bulky for most transactions. But, a bottle of Jack will most likely be worth its weight in gold.

  • Jack T

    I wish I could get transaction fees at 2.28% from visa…..who is in dreamland now?
    I agree with Steve Jenks below and to add, ignorance is just not understanding what something is really about