On the nature of bitcoin and other cryptocurrencies: The future of money or digital commodities

Recent developments of the Bitcoin and other so-called crypto-currencies have triggered the discussion on their nature and role, particularly whether they can be deemed to be representatives or precursors of a new, sustainably viable form of a decentralized international currency. In a largely digitally developed globalized economy, the scale and a form of such digital currencies would go far beyond the denationalized money imagined by Hayek and other economic thinkers in the pre-digital era.

The purpose of this paper is to determine the nature of such crypto-currencies in their current form and discuss what function they could take, anticipating likely future technological, sociological and regulatory developments. This tri-dimensional approach constitutes a novelty in comparison to existing literature and research.

In a first stage the paper opens with a brief review of the historical development of money and the international monetary system and the definition of money and currencies. Building on this, the characteristics of the Bitcoin and other crypto-currencies with respect to their monetary function are ascertained. From this perspective the role current and future forms of crypto-currencies could take in an international monetary system are discussed, given the likely spread and developments in technology, the level social acceptance and monetary policy measures that may arise in anticipation or response.

Furthermore the paper addresses the question of whether existing or future crypto-currencies could assume non-monetary functions, as digital commodities, much like precious metals, including the aspect of refuge values to ward against monetary crises.

To support the argumentation, data of public platforms for Bitcoin future contracts that have been traded on two major international exchanges will be reviewed and professionals who trade in or analyze crypto-currencies at large financial institutions will be interviewed, as well as foreign exchange and commodities traders of the same or other institutions. Experts in the fields of sociology and technology will complete the interview panel.

Expected research outcomes include the determination of the role the Bitcoin and other crypto-currencies could possibly assume in the international monetary complex given likely developments in technology, social behavior and regulations. A second outcome revolves around the possibility of the same artifacts becoming purely digital commodities with a refuge value similar to the one usually attributed to precious metals.