Cryptocurrency as Money
Why Bitcoin Keeps Failing the Oldest Test in Economics
Cryptocurrency has made people fortunes and wiped them out, but almost nobody uses it to buy lunch — and that tension reveals something profound about what money actually is.
The Idea
Money, at its core, is a shared fiction that has to do three jobs simultaneously: store value reliably over time, serve as a medium of exchange in everyday transactions, and act as a unit of account — a stable yardstick against which we price everything else. The interesting thing about Bitcoin and most cryptocurrencies is not that they fail these tests entirely, but that they ace one while spectacularly fumbling the others. As a store of value, Bitcoin has — for some periods, for some holders — been extraordinary. As a unit of account, it is almost useless: try mentally pricing a weekly grocery shop in a currency that swings twenty percent in a fortnight. And as a medium of exchange — the thing that makes money feel like money in daily life — it is barely used at all. Most people who own Bitcoin are holding it, speculating that someone will pay more for it later. That is closer to owning a share or a rare painting than to holding currency. This is what economists call the 'trilemma of money', and it explains a puzzle: why something can be simultaneously revolutionary and, by the traditional definition, not quite money yet. Gold ran into similar limits — it stored value beautifully but was terrible for buying things quickly. What eventually made modern money work was the state stepping in to underwrite credibility. Cryptocurrency is, in part, a bet that credibility can be underwritten by mathematics and consensus instead — which is a genuinely radical idea, and not yet a proven one.
In the World
In September 2021, El Salvador made Bitcoin legal tender — the first country to do so — requiring businesses to accept it and handing every citizen a digital wallet loaded with a small sum to get started. President Nayib Bukele framed it as a leap toward financial inclusion: a third of Salvadorans had no bank account, but most had a smartphone. Three years on, the results were instructive. A survey by the National Bureau of Economic Research found that the vast majority of businesses that initially accepted Bitcoin had stopped doing so within months. Citizens cashed out the government gift almost immediately, treating it not as currency to circulate but as a windfall to convert into something stable. Remittances — one of the stated use cases, since many Salvadorans receive money from family working abroad — did not meaningfully shift to Bitcoin either. What El Salvador revealed was not that cryptocurrency is worthless, but that trust in money is deeply habitual and institutional. People did not trust Bitcoin to still be worth the same amount by the time they spent it. The volatility that makes it exciting to traders makes it terrifying as a medium of exchange — because the whole point of money is that you should not have to think about it. It should be boring. Bitcoin, whatever else it is, is not boring.
Why It Matters
Understanding why cryptocurrency struggles to function as conventional money is not an argument against it — it is a lens for thinking more clearly about what you are actually doing when you buy it. If you hold Bitcoin, you are making a speculative bet on future adoption and scarcity, much like buying into an early-stage asset class. That can be rational. But conflating it with 'money' muddies your thinking and your risk assessment. It also opens a bigger question worth sitting with: the money in your bank account works because millions of people, institutions, and governments have agreed it does. That agreement is surprisingly fragile — hyperinflations, bank runs, and currency crises remind us of this periodically. Cryptocurrency emerged directly from the 2008 financial crisis, a moment when that agreement visibly cracked. Whether it represents the next evolution of money or an elegant solution in search of the right problem probably depends on how much you trust the institutions that currently underwrite your currency — and how much you think mathematics can replace them.
A Question to Ponder
If money is ultimately a collective agreement about what has value, what would it actually take for you to trust something new enough to accept it as payment for your time and labour?
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