When Bitcoin first came about, and then gained popularity, there were certain arguments made by Bitcoin proponents on why Bitcoin would be successful and eventually be used as a form of money.
The main arguments were these:
- Low or No Transaction Costs
- Privacy
- Limited Supply of Bitcoins
- Acts as a Replacement for the Dollar
News recently came out that Amazon posted a job for someone to research and develop a case for Amazon pursuing a cryptocurrency payment system. On this news, Bitcoin spiked up in price.
Amazon is a trillion-dollar company, and a job posting, for presumably one single job, sent Bitcoin soaring. This absurdity rivals a tweet from Elon Musk.
Let’s just say that this comes to fruition and Amazon does actually start accepting Bitcoin. How will this be possible, and what will be the ramifications?
Let’s run through how this pairs with the original arguments in favor of Bitcoin, plus some other things to consider.
Low or No Transaction Costs
It isn’t clear that this will happen will Bitcoin. It seems that the idea of no transaction costs was more theory than reality. If someone wants to buy a five-dollar pair of socks on Amazon, there better not be any transaction costs involved with using Bitcoin or else it doesn’t make any sense. You don’t have to pay a fee to your credit card company in order to use your credit card to buy a product on Amazon.
Privacy
If you buy something from Amazon and it is shipped to your house, does it really matter what form of money you use when it comes to privacy? There is no privacy. In fact, you don’t really want privacy. If you buy a defective product, you want to be able to return it. Bitcoin does nothing for us in terms of privacy when we are talking about Amazon.
Limited Supply of Bitcoins
The supply of the number of bitcoins is limited. This makes it different from the dollar and every other fiat currency issued by governments and central banks. This is the best aspect of Bitcoin. Unfortunately, this one feature doesn’t legitimize it as a form of money.
Acts as a Replacement for the Dollar
While there are many reasons to criticize the U.S. dollar and the Federal Reserve that creates them out of thin air, it doesn’t mean that Bitcoin or any other cyrptocurrency should replace the dollar just because someone brought it into existence.
The dollar was originally backed by gold, and the government pulled that backing away over time. The dollar is legal tender in the United States. That is the money that is used for buying, selling, making contracts, and paying taxes.
Speaking of Paying Taxes
How is Amazon going to collect bitcoins when you are supposed to pay a capital gains tax on any gains made in terms of dollars? Maybe Amazon can figure it out for its books, but is the federal government really going to be ok with people transacting in Bitcoin without reporting to the IRS?
If you buy a fractional share of a bitcoin for $1,000 and it goes up in dollar value to $2,000, then you have made a 100% return on your money (your dollars) once you get rid of that share of a bitcoin. If you use it to buy something on Amazon, that would be the equivalent of selling it. So if you buy a $5 hat on Amazon with, then using this example, you will owe capital gains taxes on $2.50. It’s as if you bought $2.50 of Bitcoin and sold it (by buying from Amazon) for $5.00.
I’m getting confused just typing this, and that was a pretty easy example. Again, I ask whether the government will let people get away with massive buying on Amazon without reporting any of it for taxes.
Actual Pricing
As with anything, Amazon will not actually sell any products for Bitcoin. It will accept payments in Bitcoin (if the rumor comes to fruition), which is not the same thing. Everything in the U.S. will be priced in dollars, and there will be a conversion rate to Bitcoin. The price in Bitcoin will constantly fluctuate based on the price of Bitcoin in dollars.
Therefore, Bitcoin is not serving as money. Nothing is actually priced in Bitcoin.
Who Will Use Bitcoin to Buy Things?
Maybe some people will use Bitcoin to buy something for the novelty of it. But the people who own Bitcoin are mostly doing so as a speculation to make actual money (i.e., dollars). There are some hardcore Bitcoin people who think it will revolutionize the world and that it will become the primary form of money in our world. But if they really think this, or if they just think that the dollar price of Bitcoin is going higher, why would they get rid of it to buy things on Amazon? They would use dollars. They would hold Bitcoin for when it becomes more valuable down the road, unless they have all Bitcoin and no dollars in their possession.
It’s Still Computer Code
Bitcoin is still nothing. It was created out of thin air much the same way that dollars are created out of thin air by the Federal Reserve with a computer screen entry.
Gold acted as money for thousands of years because it was seen as having value in itself. It was used for jewelry and for many industrial purposes. It has all of the qualities that make up a good form of money.
Bitcoin is computer code. You can’t hold it. You can’t do anything with it except hope that someone else will want it too. The blockchain technology may be great and have great future potential, but owning Bitcoin doesn’t mean you own the blockchain technology. Bitcoin is facilitated by the blockchain. There is a major difference.
There are thousands of cryptocurrencies that have been created out of thin air. Bitcoin just happened to be the first that got any attention.
Bitcoin is not money, and it never will be a form of money. It will never be a medium of exchange on a wide scale. It will not be widely used for everyday transactions.
It is a speculation. In an environment of loose money and low interest rates, people are trying to make a quick buck. Bitcoin provides that opportunity with massive volatility.
The rumor that Amazon may accept Bitcoin as a form of payment is noise. It may or may not happen. It is speculation, and it has already been denied by Amazon. But it gives a reason for speculators to drive the price up again in hopes that they can make an easy profit in U.S. dollars.