bitcoin usage
![tradingshot-bitcoin.jpg](file-guid:578721a8-ed64-4790-ab3f-29cdd3938ceb "tradingshot-bitcoin.jpg")
# **Economics and usage**
According to the European Central Bank, the decentralization of money offered by bitcoin has its theoretical roots in the Austrian school of economics, especially with Friedrich von Hayek's book The Denationalization of Money, in which he advocates a complete free market in the production, distribution and management of money to end the monopoly of central banks. Sociologist Nigel Dodd, citing the crypto-anarchist Declaration of Bitcoin's Independence, argues that the essence of the bitcoin ideology is to remove money from social, as well as governmental, control. The Economist describes bitcoin as "a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks". These philosophical ideas initially attracted libertarians and anarchists. Economist Paul Krugman argues that cryptocurrencies like bitcoin are only used by bank skeptics and criminals.
### Recognition as a currency and legal status
Money serves three purposes: a store of value, a medium of exchange, and a unit of account. According to The Economist in 2014, bitcoin functions best as a medium of exchange. In 2015, The Economist noted that bitcoins had three qualities useful in a currency: they are "hard to earn, limited in supply and easy to verify". However, a 2018 assessment by The Economist stated that cryptocurrencies met none of these three criteria. Per some researchers, as of 2015, bitcoin functions more as a payment system than as a currency. In 2014, economist Robert J. Shiller wrote that bitcoin has potential as a unit of account for measuring the relative value of goods, as with Chile's Unidad de Fomento, but that "Bitcoin in its present form ... doesn't really solve any sensible economic problem". François R. Velde, Senior Economist at the Chicago Fed, described bitcoin as "an elegant solution to the problem of creating a digital currency". David Andolfatto, Vice President at the Federal Reserve Bank of St. Louis, stated that bitcoin is a threat to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks, because it prompts these institutions to operate sound policies.
The legal status of bitcoin varies substantially from one jurisdiction to another. Because of its decentralized nature and its global presence, regulating bitcoin is difficult. However, the use of bitcoin can be criminalized, and shutting down exchanges and the peer-to-peer economy in a given country would constitute a de facto ban. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, and law enforcement. Nobel-prize winning economist Joseph Stiglitz says that bitcoin's anonymity encourages money laundering and other crimes. This is the main justification behind bitcoin bans. As of November 2021, nine countries applied an absolute ban (Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia) while another 42 countries had an implicit ban. Bitcoin is only legal tender in El Salvador.
### Use for payments
As of 2018, Bitcoin is rarely used in transactions with merchants, but it is popular to purchase illegal goods online. Prices are not usually quoted in bitcoin and trades involve conversions into fiat currencies. Commonly cited reasons for not using Bitcoin include high costs, the inability to process chargebacks, high price volatility, long transaction times, and transaction fees (especially for small purchases). Bloomberg reported that bitcoin was being used for large-item purchases on the site [Overstock.com](http://Overstock.com) and for cross-border payments to freelancers. As of 2015, there was little sign of bitcoin use in international remittances despite high fees charged by banks and Western Union who compete in this market.
In September 2021, the Bitcoin Law made bitcoin legal tender in El Salvador, alongside the US dollar. The adoption has been criticized both internationally and within El Salvador. In particular, in 2022, the International Monetary Fund (IMF) urged El Salvador to reverse its decision. As of 2022, the use of Bitcoin in El Salvador remains low: 80% of businesses refused to accept it despite being legally required to. In April 2022, the Central African Republic (CAR) adopted Bitcoin as legal tender alongside the CFA franc, but repealed the reform one year later.
Bitcoin is also used by some governments. For instance, the Iranian government initially opposed cryptocurrencies, but later saw them as an opportunity to circumvent sanctions. Since 2020, Iran has required local bitcoin miners to sell bitcoin to the Central Bank of Iran, allowing the central bank to use it for imports.\[120\] Some constituent states also accept tax payments in bitcoin, including Colorado (US) and Zug (Switzerland). As of 2023, the US government owned more than $5 billion worth of seized bitcoin.
## Use for investment and status as an economic bubble
Government website with El Salvador reserves in May 2024 As of 2018, the overwhelming majority of bitcoin transactions took place on cryptocurrency exchanges. Since 2014, regulated bitcoin funds also allow exposure to the asset or to futures as an investment. Individuals and companies such as the Winklevoss twins and Elon Musk's companies SpaceX and Tesla have massively invested in Bitcoin. Bitcoin wealth is highly concentrated, with 0.01% holding 27% of in-circulation currency, as of 2021. As of September 2023, El Salvador had $76.5 million worth of bitcoin in its international reserves.
In 2018, research published in the Journal of Monetary Economics concluded that price manipulation occurred during the Mt. Gox bitcoin theft and that the market remained vulnerable to manipulation. Research published in The Journal of Finance also suggested that trading associated with increases in the amount of the Tether cryptocurrency and associated trading at the Bitfinex exchange accounted for about half of the price increase in bitcoin in late 2017.
Bitcoin, along with other cryptocurrencies, has been described as an economic bubble by several economists, including Nobel Prize in Economics laureates, such as Joseph Stiglitz, James Heckman, and Paul Krugman. Another recipient of the prize, Robert Shiller, argues that bitcoin is rather a fad that may become an asset class. He describes its price growth as an "epidemic", driven by contagious narratives.
According to research published in the International Review of Financial Analysis in 2018, Bitcoin as an asset is highly volatile and does not behave like any other conventional asset. According to one 2022 analysis published in The Journal of Alternative Investments, bitcoin was less volatile than oil, silver, US Treasuries, and 190 stocks in the S&P 500 during and after the 2020 stock market crash. The term hodl was created in December 2013 for holding Bitcoin rather than selling it during periods of volatility.
Economists, investors, and the central bank of Estonia have described bitcoin as a potential Ponzi scheme. Legal scholar Eric Posner disagrees, however, as "a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion". A 2014 World Bank report also concluded that bitcoin was not a deliberate Ponzi scheme.