🟪 Does crypto matter as money?

December 16, 2024 | Read Online

_{Brought to you by:}

"Money's a matter of functions four,
A Medium, a Measure, a Standard, a Store."

— William Stanley Jevons, Money and the Mechanism of Exchange (1875)

Does crypto matter as money?

The poet-economist William Stanley Jevons defined money by its four functions: a medium of exchange, a common measure of value (aka, unit of account), a standard of deferred payment (ie, it can be used to repay debt), and a store of value.

Somewhere along the line, economists dropped the standard-of-value function, I guess because it seemed obvious or redundant. This left us with the famous three-pronged, functional definition of money: medium of exchange, unit of account and store of value.

Of these, "medium of exchange" has always been the most important, as evidenced by the title of Jevons' treatise: Money and the Mechanism of Exchange.

The primary purpose of money, Jevons wrote, was to solve the "double coincidence of wants" problem that's inherent to barter systems by allowing individuals to sell their goods for currency and then using that currency to buy what they want.

This primary function of money was meant to be bitcoin's primary function too, as Satoshi made clear in the first line of his seminal white paper: "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."

That hasn't worked out so far as we've mostly chosen to HODL our bitcoin instead of using it for payments.

But we still want bitcoin to be "money" (so that it's not just a memecoin), so we surreptitiously moved the monetary goalposts and declared that bitcoin is money because it's a store of value.

This never made sense to me, however, because if fulfilling only the store of value function qualifies something as money, then quite a lot of things would qualify as money: stocks, bonds, land, fine art, baseball cards, beanie babies, my collection of vintage video games — so many things that the definition becomes meaningless.

I've previously tried arguing that the store-of-value function should therefore be measured in months instead of years: The purpose of money is not that it increases or even maintains its purchasing power over long periods of time, but that it's predictable over short periods (ie, you know that your checking account balance will cover next month's rent).

By that definition, bitcoin is not money because $1,000 of it today might be worth only $500 by the time rent comes due next month, which is disqualifying (even if it's worth $2,000 the month after).

This stricter definition hasn't caught on because 1) not enough people read this newsletter and 2) bitcoin has gone up so much it often seems like better money.

To me, however, that's exactly what makes bitcoin an asset and not money — but as long as "store of value" is in the definition of money, people will say bitcoin is money.

So JP Koning thinks it should no longer be in the definition of money: "It's time to trash the 'store of value' function of money," he wrote in a blog post last week.

"Every asset functions as a store of value," he reasons, "so it is meaningless to cast Store of Value as a unique function of money."

Weirdly, he didn't cite any of my newsletters to support his case.

Instead, he cites the economists Nick Rowe ("we need to stop thinking of money as a store of wealth") and George Selgin ("the claim that money is a store of value is one of the greatest errors of monetary theory").

I don't think you need to be a credentialed economist to assess these arguments.

No US resident holds dollars because they think their purchasing power will increase, for example — and yet, dollars are obviously money.

US residents hold dollars because their expenses are priced in dollars — dollars are the medium of exchange we need to pay our bills.

By that logic, crypto can only be money to the extent that people use it as a medium of exchange to meet current or future crypto-denominated expenses.

None of my future expenses are denominated in bitcoin, so I don't think of the bitcoin I own as money (I think it's an asset that will probably go up).

The ETH that I own, however, is money, by that definition: I hold ETH on various Ethereum-aligned blockchains so I can pay the gas fees required to occasionally lose money in the memecoins listed there.

But these gas fees are so low (typically $0.01 or so per transaction), that my stockpile of crypto money doesn't add up to much; I only have a few hundred dollars of ETH scattered across four or five chains, and even that is 10x more than I need.

That's not the only thing people need ETH for, but, unscientifically, it's hard for me to imagine that ETH's $400 billion market capitalization can be explained by its "monetary premium" or "moneyness."

To me, ETH felt most like money when NFTs were booming and people thought about NFT prices in terms of the ETH they were denominated in (making ETH both the medium of exchange and unit of account).

But crypto is all about fungible tokens now and these are mostly denominated in stablecoins (or even just dollars on centralized exchanges like Coinbase).

This could change, of course — if the bitcoin strategic reserve truly catches on, US dollars may someday be denominated in bitcoin instead of the other way around.

Or perhaps our mortgages will someday be denominated in ETH.

Or maybe Elon will soon let us pay our taxes in DOGE.

But until one of those days comes, cryptocurrencies will be assets, not money.

As the poet-economist William Jevons might put it:

"Crypto's a matter of functions one,
A store of value, but money it's none."

— Byron Gilliam

Brought to you by:

Unlock the power of DeFi with Odos!

Spanning 14 blockchain protocols, trusted by 3M+ unique wallets, and powering 80+ API partners, Odos delivers scale, reliability, and results you can count on.

Trade any token effortlessly with our cutting-edge order routing, seamless user experience, and fully transparent quotes. Ready to elevate your platform? Partner with Odos and bring advanced trading solutions straight to your users via API.

Start trading smarter with Odos today!

Explore Odos

Inside the Cosmos Hub's Great Reset

What does Skip's acquisition by Cosmos mean for the future of the ecosystem? Barry and Zaki discuss the challenges of blockchain standardization and Skip's vision for unifying the ecosystem.

Listen to Expansion on Spotify, Apple Podcasts or YouTube.

Crypto's future isn't debated — it's created. 

This June, Permissionless IV gathers the most innovative minds in crypto and onchain development in Brooklyn, NY. From breakthrough technologies to actionable ideas, this is where builders and visionaries come together to define tomorrow.

June 24-26, 2025 | Brooklyn, NY

Don't miss it

John Paul Koning @jp_koning

Fascinating Tether anecdote:

On a recent state visit to Iran, Belarusian leader Alexander Lukashenko couldn't pay ahead of time for logistics, since both Lukashenko and Iran are sanctioned.

Their solution? "Please check if you can pay tether."