Within the last month, the euro and the US dollar lost around 25 percent compared to Bitcoin. There is little to suggest that the downward slide will stop soon. Why this view of the exchange rate is not yet a majority and what has to change so that Bitcoin becomes a “correct” currency.
If you look at the value development of the value pair Euro / Bitcoin, a clear picture emerges: within a month, the external value compared to BTC has decreased by a quarter. Over the year, the euro has even slumped by around 75 percent compared to Bitcoin. The five-year perspective shows a decline of 98.8 percent – almost a total loss. The euro currency could, however, be exchanged for any other national currency – so-called fiat money. The result or the loss in value compared to Bitcoin would be almost identical.
Bitcoin is not a currency – or is it?
The view presented above should seem alien even to Bitcoin enthusiasts. The exchange rate is always only converted from Bitcoin to Euro and never the other way around. After all, we are used to converting from “our” currency to another currency. Even if BTC were to become more established in the future, our reference currency would always remain the euro. But can you classify Bitcoin as a currency at all and compare it with fiat currencies?
What a currency is or not is less determined by its properties than by the state. As a social construct, money always depends on people’s perception and acceptance. An intersubjective or objective currency, which is virtually given by nature, cannot actually exist.
Our society is used to the state determining what is a currency and what is not. When the state – through its deputy, the central bank – determines that the euro is a currency, then, in the collective understanding, the consensus arises that the euro is a currency. Together with the basic monetary properties such as homogeneity or divisibility as a prerequisite, a standard is created on which a society agrees.
Cryptocurrencies: Better Than Cigarettes?
In emergency situations, currencies can even deviate from the specified monetary properties. Think of cigarettes that are used in prisons or currency crises as a medium of exchange or as a substitute for money.
Just like cigarettes, Bitcoin also lacks official jurisdiction or nomination as a currency. Since BTC is not issued by a state, but is created through a decentralized logic, Bitcoin lacks initial interpretative sovereignty. There was never a powerful actor who could define Bitcoin as a currency within the framework of a constitution. Accordingly, the process of “currency development” with BTC is different and, above all, much longer than with fiat currencies.
Rethinking Bitcoin as the national currency?
But even if a state like El Salvador sets Bitcoin as the official national currency, the currency status is only effective to a limited extent. After all, BTC is like a foreign body in the fiat currency ecosystem. It works according to other principles. What is “normal” and what is not is defined by the dominance of the globally prevailing currency type. And this is still fiat money. The euro is therefore “normal” – in other words: system compatible – and Bitcoin is not.
The deviation from the norm is also reflected in the range of fluctuation between Bitcoin and fiat currencies. Large currency areas or the “fiat elite” such as US dollars, euros, yen etc. are characterized by the fact that they show only relatively small fluctuations in relation to one another. After all, they represent the world’s largest economies. Currency speculation is possible in a variety of ways, but private households and companies have a certain certainty that volatility will be limited. Even if some Bitcoin enthusiasts may be bothered by the statement, volatility is one of the biggest problems for BTC as an everyday means of payment.
A currency that occasionally outperforms every other currency in the world by 25 percent per month is only conditionally suitable for visiting a coffee house. The enormous price increases make Bitcoin more of a speculative store of value than a currency.
Currency breakthrough in 2030?
But what if Bitcoin gets to the point where a certain saturation occurs. What if Bitcoin stands at 800,000 US dollars in around ten years, for example, has a market capitalization of around 14.5 trillion US dollars, and hardly moves from the spot and is as volatile as the euro / US dollar currency pair. Certainly, BTC may then still serve as a store of value, which is more attractive than the respective fiat currencies, but at the same time speculation would be reduced and the currency function would be increased.
At this “end point”, the price of coffee or a visit to the hairdresser that is paid for in Bitcoin in the euro zone or in the US dollar area would remain stable. For example, coffee would cost 600 satoshi in one month as it would in six months. Theoretically, a broad understanding of the currency of Bitcoin could then cultivate much sooner than is the case today.
Bitcoin could develop into the international standard, especially on vacation or on a business trip, in order to bypass exchange fees and avoid conversions, since the only foreign currency that one would need to know would be Bitcoin. Just like in El Salvador, it could then become the standard that all goods and services are shown once in the national currency and once in Bitcoin, more precisely in Satoshi.
Should Bitcoin establish itself as a currency in the future, it must of course be clear that the transactions will not be processed directly via the Bitcoin blockchain, but via second-layer solutions such as the Lightning Network. For the “currency development” there are still technical challenges to be mastered.