Bitcoin cannot serve as a medium of exchange for commodities

According to China News Network, Sheng Songcheng, director of the Survey and Statistics Department of the People's Bank of China, recently wrote an article pointing out that the issuance of modern currency is based on national credit, and Bitcoin lacks national credit support, making it difficult to perform the function of a medium of exchange for commodities as a base currency, and cannot meet the basic requirements of the modern credit currency system.

He said that Bitcoin itself has no value, no national credit support, and no value basis for currency, so it cannot serve as a medium of exchange for goods. Serving as a medium of exchange for goods is the essential attribute and most basic function of currency. Due to the lack of legal tender and compulsion, the circulation of Bitcoin is limited and unstable, and it is difficult to truly play the role of a circulating payment method.

Bitcoin is highly substitutable and it is difficult to serve as a general equivalent. Any digital "currency" that has its own mining algorithm, follows the P2P protocol, is limited, and has no central control can potentially replace Bitcoin. Bitcoin has neither unique natural properties nor exclusivity and uniqueness granted by law. It is easy to be replaced and it is difficult to serve as a general equivalent and become a medium for commodity exchange.

The number of Bitcoins has an upper limit, which makes it difficult to adapt to the needs of modern economic development. The process of Bitcoin generation is entirely based on technology rather than economic principles. The upper limit and the time to reach the upper limit have been fixed by technology, that is, the upper limit of 21 million will be reached in 2140. The limited number is an important reason why many people believe that Bitcoin is superior to other virtual currencies and can even be comparable to gold. However, precisely because of the limited number, Bitcoin is difficult to become a medium of exchange that meets the needs of modern economic development.

If Bitcoin becomes the standard currency, the contradiction between the limited amount of currency and the ever-expanding social production and commodity circulation will become increasingly larger, which will cause deflation and inhibit economic development. The limited amount also limits Bitcoin's function as a means of circulation and payment, making it more likely to become an object of speculation rather than a medium of exchange.

Bitcoin lacks a central regulatory mechanism and is not compatible with the modern credit currency system. The lack of a centralized issuing and regulatory agency, the so-called "decentralization", is a major feature of Bitcoin and is considered an important reason why Bitcoin is superior to other virtual currencies. However, the central regulatory mechanism with the monetary authority as the core is the basic guarantee for the normal operation of the modern credit currency system. Bitcoin has no centralized issuer and is prone to over-hype, causing large price fluctuations. In addition, it is impossible for the monetary authority to regulate the macroeconomy by changing the supply of Bitcoin. Therefore, Bitcoin cannot meet the basic requirements of the modern credit currency system.