What are the three functions of money? Can something be considered money if it does not fulfill all three functions? Would you consider Bitcoin money?

 

Functions of Money

            Money has taken various forms throughout history, but it has always served three functions: Money is seen as a medium of trade since it is widely accepted as a payment mechanism. Without money, transactions would be based on the barter system, which is dependent on the double coincidence of two transacting parties' wants. However, the possibility of this occurrence is low, posing a challenge to the barter trade system. Money efficiently eliminates this problem by being generally accepted in all transactions, by all parties, regardless of the goods and services ("Money definition," n.d.).

            Money serves as a store of value by allowing people to save and invest. As a result of this feature of money, purchasing power can be transferred from one person to another over time. Although it is useful, it is not regarded as the finest store of value because it depreciates with inflation. Money, on the other hand, is more liquid than most other storage of value since it is universally recognized as a medium of exchange ("27.1 defining money by its functions – Principles of economics," n.d.). Money serves as a common unit of account for valuing the goods and services exchanged. Knowing a good's monetary value allows both the provider and the consumer to make decisions about how much of the good to supply and how much to buy.

            To be considered money, something must possess and fulfill all of the primary characteristics of money. It must be a widely acknowledged, recognized, and centralized medium of exchange in an economy that facilitates transactional trading for commodities and services. Bitcoin money should be used because it is a cryptocurrency, which is a type of electronic cash, and it also meets the basic requirements of money. Its characteristics, including scarcity, divisibility, a decentralized security network, and as a holder of wealth transfer, make it an excellent store of value.