Monday, October 7, 2013

Is Bitcoin Money?: What Economists Have To Say

As a follow up to my report that Hans Hermann Hoppe does not believe Bitcoin is money, EPJ reached out to a number of economists and others familiar with Bitcoin, to get their view on whether Bitcoin is money. We asked all to simply answer "yes" or "no", or to provide a short paragraph on Bitcoin. These are the responses we received (Note: All responses were provided before the shutdown of Silk Road):

William Anderson: I say "yes" because Bitcoins are accepted as payment for goods and it also operates as a parallel currency in some countries, such as Argentina. A monetary form does not have to be accepted by a government or officially labeled as "legal tender" in order to become money. Money is a good that facilitates indirect exchange, and Bitcoin fits that profile.

Walter BlockBitcoin is not (yet) money. Money is properly defined as something generally used to facilitate trade, as an intermediary, so that we do not have to engage in barter. Most restaurants, supermarkets, movies, shoe stores, airlines, car dealerships, drug dealers, massage parlors, doctors, lawyers, accountants, etc., will not accept bitcoins for payments for their goods and services. When and if bitcoin is generally accepted for such purposes, it will then become a money.

David GordonI don't think that Bitcoin at the present time is money, as it is not now in use as a general medium of exchange. If enough people were to use it in transactions, it could become money.

Guido Hülsmann: Money is a generally accepted medium of exchange. While it is obvious that bitcoins are media of exchange, it is not quite clear whether they are also money. Are they generally accepted? I don’t think that this is presently the case. Most people are not even aware that bitcoins exist, and most of those who have heard of them do not at present consider using them. Things could change, especially if price-inflation rates pick up, but at present we are not yet there.

Trace Mayer: Yes. Bitcoin is money because it is limited in amount by internal characteristics enforced by the laws of mathematics and thermodynamics that is not subject to counter-party risk or anyone's liability and it also functions as a currency because it acts as a medium of exchange.

Pippa Malmgren: The answer is "Yes". Money becomes real when people have faith in it. Governments have no monopoly on that which is why they spend a lot of time putting many symbols of faith and trust on the currency from pictures of sovereigns like the Queen or the President to hidden symbols of power like pyramids and seals. They would not need to if it stood on its own. Faith can be earned and it can be lost. The problem with bitcoin is that people are afraid a power outage or a hacker or bad management could erode or destroy the value of a bit coin. But, then again, governments are doing their best to erode confidence in fiat money too.

Robert P. Murphy: Not yet.

George Reisman: No. Bitcoin is not money. The essential characteristic of money is that it is a generally accepted medium of exchange. Everyone is glad to accept money in exchange for his goods or services. In contrast, only a handful of people are presently willing to accept Bitcoins in exchange, i.e., the handful of people willing to buy bitcoins.

In order for bitcoins to someday become money, a reliable exchange value would have to come into existence for them. This could be achieved if some important country became willing to redeem bitcoins on demand in exchange for its own currency, and do so for some time, or provide a sufficient fund of its own currency to make this possible by others. In that case the money character of that currency mighty be transferred to bitcoins, Such a process took place in 1924, when a new German Mark was introduced on a foundation of dollars and gold, following the destruction of the previous Mark in the hyperinflation of 1923. Perhaps today, if Bill Gates and Warren Buffet, say, combined their resources to support the value of bitcoins for a few years, a similar result might be achieved, but even that is doubtful, because even their resources are probably not sufficient, and, of course, they would have no possible motive to do this.

Otherwise, a process would have to take place similar to that which enabled gold and silver to emerge as money, namely, first, the existence of an exchange value based on use as a commodity, and then an additional and wider exchange value based on use as a store of exchange value. When enough people wanted to acquire gold or silver as a store of value, even those not interested in doing so, became willing to accept gold or silver because they knew that a substantial number of people were ready to accept it from them.

Lew Rockwell: I love Bitcoin. It's a wonderfully creative business. But obviously, it is not the most liquid good in society. Could it ever become money in this fiat world? One cannot rule it out.

Scott Sumner: I would say “no” or at least “not yet.”  The most important aspect of money is its role as the medium of account, or numeraire. As long as most wages and prices are denominated in dollars rather than bitcoins, then it is not money. Bitcoins will be money if and when the CPI is reported in terms of bitcoin prices.

Mark Thornton: Bit coin is a medium of exchange and a payment system. It has some economic advantages over government fiat money but at this time it is not money--a generally  accepted medium of exchange.

Lawrence H. White: Using the standard criterion for moneyness, to ask whether Bitcoin is money is to ask whether it is a commonly accepted medium of exchange.  A medium of exchange (MOE) is a good that is the intermediate link in a transaction chain, a good acquired in one trade for the purpose of being traded away later for something else.  Bitcoin is clearly not a commonly accepted MOE in the US economy as a whole, but no doubt some individuals or businesses do use Bitcoin balances as MOE, treating it like ordinary currency or checking account balances.  They sell goods or services for Bitcoins, hold the Bitcoins, and later spend them to buy other goods and services.  If Bitcoin is commonly accepted as a medium of exchange within a circle of such users, it is money in that circle.  But note that nobody, as far as I know, receives their income or buys most of what they consume in Bitcoin.  It is not the primary money for many, perhaps not any, of its users.

How big is the circle of Bitcoin MOE users?  It would be interesting to know.  Annual transaction volume in Bitcoin, at $30 million per day, exceeds the annual purchases of newly produced goods and services (GDP) in Surinamese dollars, to choose one minor money.  But not all Bitcoin transactions represent purchases of goods and services, and thus not all use is monetary use.  I suspect that purchases of goods and services are only a small fraction of Bitcoin transaction volume, but I don't know how to figure the percentage.  (Perhaps someone else can decipher the data available at, or find relevant other data, better than I can.)  When John Doe buys Bitcoins with dollars in order to speculate against dollars, and expects to later sell his Bitcoin holdings for dollars, he is not using those Bitcoins as money.  When a business sells goods for Bitcoins, then exchanges those Bitcoins at the end of the day for US dollars, it is using Bitcoins only very briefly as money.

Tom Woods: Bitcoin is a medium of exchange but not money. This isn't an insult to or a value judgment about Bitcoin. Austrians sometimes describe money as the most widely accepted medium of exchange in society. Clearly Bitcoin does not satisfy this requirement.

Mises, for his part, describes money as a medium of exchange in common use: "A medium of exchange which is commonly used as such is called money. The notion of money is vague, as its definition refers to the vague term 'commonly used.' There are borderline cases in which it cannot decided whether a medium of exchange is or is not 'commonly' used and should be called money."

I don't think Bitcoin is in common enough use to be called money.


We did reach out to a number of other economists who did not respond. Paul Volcker, Ben Bernanke and Janet Yellen were among the non-responders.

Alan Greenspan's assistant sent this email reply:
Thanks for your inquiry. Dr. Greenspan’s schedule is heavily committed and he’s unable to respond to your question.

(Special thanks to Chris Rossini, who contacted those queried.)


  1. I don't agree with the majority opinion here that bitcoin must pass a certain threshold of users/merchants in order for it to be considered money. If people use bitcoin as an exchange medium, then it is money.

    1. You're just playing a definition game. They define 'money' differently than you do. Your difference with them has nothing to do with the actual characteristics and use of BitCoin.

  2. Great post! More like this would be awesome!

  3. Economists can dance on the head of a pin about the question, but hookers now accept Bitcoin for services rendered, ergo it's money.

    Real world trumps the ivory tower.

  4. Hey Bitcoin, are they Economists?

  5. Lawrence H. White: "...But note that nobody, as far as I know, receives their income or buys most of what they consume in Bitcoin. "

    Anonymous #2: "...but hookers now accept Bitcoin for services rendered, ergo it's money."

    Done, and done!

    Basically,I am with Mises, as referenced by Dr. Woods: I don't like how deciding whether something is or isn't money depends on the vague qualifier "commonly used." Is a national currency still money once it hits the hyperinflationary stage, maybe. Is the currency of a rival nation money outside its borders, most definitely; it's the source of USD being "the world's reserve currency." Are cigarettes money in prisons, again maybe.

    It's a question that's more interesting, it seems, by how uncertain one is in answering it.

  6. I believe Rothbard would have included it in his measure of the money supply because it is instantly exchangeable for cash at par.

  7. YES! See USA Texas Court case Securities and Exchange Commission (SEC) verses Trendon Shavers (a.k.a. Pirateat40). Legal president is set and Bitcoin (BTC) is officially recognized by the court as a virtual currency.

  8. Bitcoin is not money, but neither is the us dollar, euro, yen, renminbi etc.. These are all currencies (that includes bitcoin).
    As JP Morgan famously said: "gold is money, all the rest is credit".
    The difference between money and currency ? They both act as a medium of exchange, but money has the added quality of being a store of value in and of itself.
    Currencies have counterparty risk (default on redemption obligation), money doesn't.
    As for bitcoin "not yet" being a currency, because not enough economic agents accept it: that is utter nonsense. There must be over 500 000 people in the world who engage in trading with bitcoins. That's about the population of Luxembourg (when it still had the Letzebuerger Franc). Are you telling me the Luxemburg Franc was not a currency because "it wasn't used by enough people"? Where are you going to draw the line between "enough people" or "not enough people" ?

  9. I think they have money in Tonga, but their money is not a generally accepted medium of exchange in Singapore. I'm not saying bitcoin is money, but most of these guys made no reference to Mises regression theorem nor Rothbards able discussions of money substitutes. The repeated patter of reference to general acceptability is on the one hand disappointing, and on the other hand enlightening in that a lot of Austrians are at least contemplating whether bitcoin challenges long held Austrian views of money. My take is that bitcoin may or may not be money, but what it has done is make a clear call for we Austrians to go back and reconsider all monetary theory and check for gaps. My personal take is that even if, upon examination, Austrians were to come to a consensus that Bitcoin were money and that the regression theorem needed to be revised or thrown out, it would not mean a collapse of the rest of the system of thought. We shouldn't be afraid to go look and carefully rethink the monetary theories.

    1. The first thing I did upon hearing about Bitcoin in February 2013 was to tackle this "regression theorem versus Bitcoin" issue in detail. I don't think there is any need to throw out Austrian monetary theory, but Bitcoin forces us to look into it a little more deeply. Before Bitcoin, we could still get away with more objectivistic laziness. Basically it is a non-issue, and mainly reflects surface oriented (as in, not Austrian) interpretations of what the regression theorem actually says. People get caught up in the words, including translations of German words, and miss the point. There is no contradiction in content, only in the surface appearances of things, which is exactly what Mises said NOT to get caught up in. I have posted several articles that go into detail on this and related points on my personal web site, including more recently the distinction between medium of exchange and unit of account.

  10. " Austrians sometimes describe money as the most widely accepted medium of exchange in society." - Tom Woods

    So then gold is not money either.

    Remember the reaction to Bernanke's "no" when Ron Paul asked him if gold was money?


  11. All very interesting replies, especially Trace Mayer and his view that thermodynamics reinforce Bitcoin as money.

    Sounds like a whole new branch of economics waiting to be discovered.

  12. Okay so I figured out why bitcoin is not and can not be currency.

    Currency is supposed to be a measurement of value. It is supposed to represent the value of something. It does other things but mostly a representation of value.

    If you look at every system of measurement known to man every one of them is dependent on a unit of measurement. That unit is imaginary it doesn't exist accept in the shared consciousness of man.
    An inch is an inch because we say so, same thing with gram, meter, foot,gallon. Every system of measurement requires a constant that doesnt change and the only thing that creates that constant is agreement.

    The problem with currency is that it is a unit of measurement without a constant, it can not be defined and the only way to give it a constant is for people to start accepting it as a constant.

    I suggest 1 unit of currency is equal to 1 joule of work.

    The hard limit to bitcoin and the fact that it cant be defined bar it from ever being a measurement of value. Measurements dont change.

    1. Value is subjective. I would value a ton of cucumbers at zero (or at most their resale or compost value) while giving a great value to a "skunk smell" (I'm one of those weirdos that finds the smell of a skunk pleasurable) whereas most people would be the opposite. Even the value of gold is subjective. A man on a life raft with a pound of gold would trade it for a gallon of water.

    2. Right all units of measurement are subjective they are all just a matter of opinion they become objective when we all accept them. The price is what changes as a ratio the standard, we have tried a gold standard and we now have a dollar standard what we need is a currency standard. The price is what changes against the standard. If you were were on a raft you would pay 10,000 joules of currency where you would only pay 10 in a store. It is price that is the representation of subjective value against something of objective value.

    3. Amber, I understand what you are trying to say - we need SOMETHING, be it joules or jewels- to represent "value".

      But value is always subjective. No fixed medium or commodity or crypto system will ever have objective value, since objective value is always subject to individual desires and needs. A person seeking to move a billion dollars worth of gold bullion out of the US could easily (ish) convert it to bitcoins and then fly to their desired new home and re-convert the bitcoins into gold far easier than vice versa.

    4. How would you carry these "Joules" around with you? Perhaps you should also read up on the 2nd law of thermodynamics before adopting this "Joule" standard. Bernanke's inflation will look tame in comparison.

  13. By that standard currency has never ever existed and never will.

    The measurements you talk about all relate to something that can be fixed. But value is subjective, and never fixed, so no currency can ever have fixed value.

    The requirement is actually the opposite - the currency must have relative value otherwise it cannot respond to changes in the economy.

    Also joules aren't of fixed value - any changes in the energy market would change the supply and demand - their price. It's no different than any other currency with regard to the unfixed nature of it's value.

    I agree it would be the best currency though.

  14. Professor Hoppe may have expressed early skepticism, but he thought enough about Bitcoin to have me deliver a lecture about at a few weeks ago at the Property and Freedom Society Conference.

    1. After studying this issue for almost a year, I'm beginning to think Bitcoin may fit the Regression Theorem BETTER than gold! It is infinitely more liquid, much easier to transfer and protect, easily transported,

  15. I find it Ironic that Under the Criteria of Bitcoin meeting a certain threshold of use to be considered money by many Austrian Economists replying then Gold or Silver is not money either.

  16. What world currencies have a monetary base, by purchasing power, that is lower that Bitcoin's? Which world currencies are less readily accepted? Are those currencies not money?

  17. Thank you Bob for doing this research. It shows that even in the Austrian school, economists are confused about money and do not have a standardised approach. I my lecture last Saturday at the Crypto-Currency Con in Atlanta, I showed five different definitions of money used by the Austrians.

    My own conclusion is that the term "money" depends on context, but in most cases in particular when analysing Bitcoin, it is not really that important. Concentrating on whether Bitcoin is or isn't money is mostly a play on words and arbitrary assignment to weighs of assorted empirical data.

    The only exception is the definition of money as a unit of account (like David Howden recently argued on Bitcoin is not used as a unit of account, and it probably won't for a long time (due to the network effect, tax laws, monetary policy, ...). But kindly note what this means. If Bitcoin becomes a unit of account, it would essentially mean that at least in one country, the whole fiat system collapsed and was replaced with Bitcoin. That would be a smashing success (for Bitcoin). But it would be misleading to take this threshold as the sole measure of success, i.e. that until then, we can ignore its effect on trade, finance, freedom or how we understand money at all. I dub this issue "money or nothing fallacy" (if Bitcoin is not money, it's nothing).

    1. Agreed, Peter. It is partly just word play. The "money or thing fallacy" is a great formulation. I have also recently taken up unit of pricing and unit of account (unit used for economic calculation) to be a much more precise definition of money than the old and vague "commonly used" criterion (as in my 14 September article). Any medium of exchange that a seller accepts in payment can then be tendered to pay a quoted price. This is much easier today than in the past due to accessible real-time exchange rate information (though there is also evidence for separation of unit of account and media of exchange from from centuries ago).

  18. So if Bitcoins will replace world currencies as the U$, Euro, Sterling, and so forth...what Central Banks and their Treasure Bonds will worth if in Order to Print money they need to sell Government bonds?
    Currencies are all tied up with their counties GDP, IMF, World Bank, Bank of International Settlements, commodities, war and peace, Trade agreements, so let me ask all where the The Central Banks of the World are quite? China and their holdings in US Treasure Bonds will be what, in Bitcoins? Money is not currency, but the Central Banks are not for decoration. Will see where this goes. B

  19. What, gold and silver are not money? According to this Austrian definition they can’t be. Amazon doesn’t accept these “precious” metals and neither do most Americans.

    Hilarious! Not at all “generally accepted.”

    If one were to engineer the perfect money, I’m not sure what it would look like but Bitcoin would have to be close. Evaluate it yourself based on some functions of money (e.g. Medium of exchange, Unit of account, Store of value) along with portability, durability, divisibility and fungibility. Not to mention the strength of the Bitcoin network that verifies transactions which is now running at well over 60 exaFLOPS (makes the NSA's computing power look like my old Comodore 64 in comparison). Compare Bitcoin vs. gold or the US dollar. Compare the Bitcoin network against Visa, MasterCard, Paypal. Bitcoin is looking good but needs to be more widely adopted. Fortunately, this is happening at the usual pace that we see in the internet age.

    I’m loving all these opinions but whatever we think is irrelevant. In time, the free market will decide if Bitcoin will be money, regardless of what definition of money is used. Let’s ask the question again in 5 years.

  20. To understand the possible price behavior of a new currency like bitcoin, use the quantity theory of money; M·V = P·Q. Sudden price rise and hoarding is to be expected, not deflation:

  21. The vast majority of these economists all weaseled out of the question by using their own vague definition of "commonly used". They moved the goal posts, so they could confidently assert that bitcoin is "not money". The guy who said the CPI index must be labeled in bitcoins for it to be considered money was quite laughable, I'm guessing he still believes that dollars are the only real money in the world by those requirements.

  22. I find it funny that 4 years later we are still arguing the 'regression theorem' aspect of Bitcoin which is something that I was a part of back in 2009-10 when it first went live at the original bitcoin forums. Those involved with the creation of the client based on the code were definitely aware of the regression theorem then. I'm not saying they had it all right, but it seems that many of the major Austrians dismiss bitcoin on these grounds in an offhanded and intellectually lazy manner.

    I think Dr. North's articles at LRC have been some of his worst he's ever written and he is among the worst offenders on this front.

    I ask the following simple question, "Do encrypted TCP/IP packets have value?" If so, they are commodities to be traded and therefore can rise to become a medium of exchange. Dr. North's dismissal of Bitcoin as 'not money' is irrelevant. Singapore Dollars are no more money to U.S. citizens than are Bitcoins and yet no one would argue the SGD's place as a money. Or can we only have currency competition that has been blessed by the high priests of the Austrian caste?

  23. Bitcoin and other alt coin’s potential are yet to be maximized. Right now, it is used as a payment system and as a commodity, but soon, I hope that it will be an everyday global currency.