Optional side note 5 min read
Bitcoin Is Money—What Does That Mean?
Storing value, making payments, and expressing prices: three functions, three different questions.
← Back to: Understand BitcoinBitcoin can be held, spent, and used to express prices. These three functions of money are distinct, and their adoption does not automatically move together.
In this note
Three jobs money does
“Bitcoin is money” describes what people can use Bitcoin for. Three questions help make that claim concrete: Can I hold purchasing power in it? Can I pay with it? Can I use it to express and compare prices?
The usual terms are store of value, medium of exchange, and unit of account. They are related, but do different jobs. You can use Bitcoin for saving while your salary, shopping, and rent are still calculated in euros.
Storing value: hold today, use later
As a store of value, money is meant to carry purchasing power into the future. Someone holding part of their savings in Bitcoin expects other people to continue valuing and accepting it.
The savings idea rests on limited issuance and the ability to hold Bitcoin yourself. It does not imply fixed purchasing power. If you hold 0.01 BTC, a price drop leaves that quantity unchanged. What it buys can fall substantially, including over extended periods.
Imagine setting bitcoin aside for something you want to do later. You are using it to store value even though you have not paid for anything yet. How well it serves that purpose depends on the choices those savings make possible later. An unchanged wallet balance cannot answer that on its own.
Paying: Bitcoin as a medium of exchange
A medium of exchange makes trade possible without each person needing exactly the goods the other wants. If a café accepts Bitcoin, you can use it to pay for a coffee. Bitcoin changes hands, and you receive the coffee.
These payments are possible today where the other party accepts them. Payment software such as BTCPay Server helps merchants do this. That does not mean you can pay every bill in Bitcoin.
The payment method also matters. A payment directly on Bitcoin’s blockchain needs space in a block. Fees and confirmation times vary. Lightning is an additional payment network built on Bitcoin that enables fast payments. Among other requirements, it needs suitable connections with enough funds available along the payment route. Setup and control of the keys depend on the wallet.
For everyday use, acceptance, reliability, ease of use, and cost all matter. The ability to save and the convenience of making payments are separate questions.
Expressing prices: Bitcoin as a unit of account
A unit of account is the measure used to set and compare prices. A satoshi, or sat, is one hundred millionth of a bitcoin. Sats make it easier to express small amounts of bitcoin.
A hypothetical café could price a coffee at 3,000 sats and calculate its prices in sats. It would be using Bitcoin as its unit of account.
If the menu instead says 3 euros, and the checkout converts that price into sats at the current exchange rate, the euro remains the unit of account. Bitcoin is the means of payment. When the exchange rate changes, the amount of bitcoin requested changes. Paying in Bitcoin does not yet mean thinking about prices in Bitcoin.
Monetization does not happen evenly
This connects to monetization: more people may hold Bitcoin as savings while merchants continue calculating prices in euros. Regular payments and prices set in Bitcoin may develop differently from demand for long-term savings.
More holders therefore do not automatically mean more businesses accepting Bitcoin. More places to pay do not yet mean salaries or rents are set in it. There is no predetermined timetable requiring all three functions to become common worldwide.
Keep this distinction in mind: owning bitcoin, paying with bitcoin, and calculating prices in bitcoin are three different actions. Notice which one you actually mean when discussing Bitcoin as money.