Everyone has heard of Bitcoin. And the ones that didn’t are probably too old, or they’ve lived under a rock the past decade.
But what is Bitcoin? Is it an asset, currency, commodity or a collectible? The opinions are different. Some people think that everything about Bitcoin is a fraud, and others think that Bitcoin and other cryptocurrencies will change the world of investing and management. You can easily price Bitcoin and you can trade it. But what is a Bitcoin?
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But first, we are going to talk about other things, and we are going to explain what are assets, what is a commodity, what is a currency, and what are collectibles.
What are the assets?
Assets should generate cash flows for you. For example, if you own a business, that’s an asset. Assets can be priced. For example, every business can be priced.
What is a commodity?
A commodity can be used as a raw material. And a raw material should meet some fundamental needs, whether it’s energy or food. And a commodity delivered its value from its use as raw material, and the value of a commodity can be estimated by looking at the demand for energy or food, for example. Commodities can be priced. Coal, wheat, oil, they all can be priced.
What is the currency?
Simply put, a currency is a medium of exchange that you can use to denominate cash flows and it can be a store of purchasing power. When it stands alone, currencies don’t have cash flow and they cannot be valued. But they can still be priced in comparison with other currencies. There are different currencies in the world, some of them are strong, and some of them are weak. Some of them are accepted more widely as a medium of exchange, and others are not. Over time currencies can rise and they can drop, and everything depends on the economic situation in the world.
What are collectibles?
By definition, collectibles are not a medium of exchange and they don’t have cash flows. But they surely can have aesthetic value, the best example are art pieces, paintings or sculptures. Collectibles can’t be valued because they don’t generate cash flows, but they can be priced. They can be priced based on how other people perceive their desirability and value.
And what is a Bitcoin?
Bitcoin is not an asset, because it can’t generate cash flows just by itself, standing alone. It is also not a commodity, for a simple reason, it’s not a raw material. You can’t use Bitcoin to produce something useful.
The most logical conclusion is that Bitcoin is a currency. Which leads us to another question? Is it a good currency? It is on the right track to becoming one.