Why Bitcoin is not a currency?

Financial tech world’s poster boy – Bitcoin was always been a star, right from having an unknown father (Who is Sathoshi Nakamoto?). It got central bankers’ fear and admiration simultaneously. Though believers of Bitcoin created a digital exchange world for it, officials and central banks never accommodated it into the formal world. For the time being, the well-parented legal tender moneys of central banks escaped from a serious disruption.

But Bitcoin is growing in the wild and is not remaining as an orphan. Financial institutions and fin-tech innovators are after this wonder kid and hence its value is going up.

Bitcoin’s currency status

Bitcoin’s biggest contribution is its technology-the block chain technology. It revolutionized digital payments. Still, the Bitcoin has not obtained the coveted status of a currency.

There are some valid reasons why the digital wonder has ended as a commodity rather than a currency.

First drawback of Bitcoin as a currency is that there is no guaranteed redeemability (convertibility) of Bitcoin into traditional currency. Its value changes in accordance with demand and supply – as in the case of a commodity. If there is no fair fixed value between a Bitcoin unit and traditional currencies, the former can’t function as a medium of exchange. Not to forget, money is known for its medium of exchange function.

Secondly, electronic money are prepaid instruments. Such prepayment doesn’t occur in the case of Bitcoin. It is obtained after digital mining. If electronic money is prepaid with traditional money and the traditional money is legally defined (legal tender); both factors are absent in the case of Bitcoin. The European Central Bank which adopts innovative and safe measures in digital payments says that if a virtual currency is to be recognized as electronic money, it should have fixed value of transferability with traditional money. In this way, it can be brought under the regulations of e-money. Otherwise, virtual currencies will be treated as commodities and not currencies. This was what happened to Bitcoin.