Bitcoin Loses Steam As Steam Loses Bitcoin

The skyrocketing price of Bitcoin has dominated the financial news for the past few weeks, and the usual suspects are queuing up to offer predictions about its continued rise or inevitable fall. Yet it’s not all good news for fans of the cryptocurrency: in a notable decision, the digital distribution platform Steam has announced that it will no longer be accepting payment in Bitcoin.

In the grand scheme of things, Steam’s new policy will likely have little impact on the use or price of Bitcoin as such. Rather, the decision is significant because it highlights an underlying economic question about the future of the cryptocurrency. Specifically, Steam’s example shows that despite an enormous gain in market value, Bitcoin still has a long way to go before it becomes money.

Money is conventionally defined as a generally accepted medium of exchange, the key part of this definition being “generally accepted.” In order to be adopted on such a large scale, a medium of exchange must fulfill certain basic criteria, the most important of which is that it must be capable of serving as a tool for economic calculation. Entrepreneurs must be able to use a means of payment to compare the costs and benefits of different production plans, and this in turn requires a degree of stability in the value of money. Of course, money’s value is never constant: but it must be dependable. The inability of entrepreneurs to calculate is one reason why extreme price inflation creates widespread social havoc—planning production becomes difficult if not impossible.

One of Mises’s original contributions to monetary theory was the emphasis he placed on money’s role as a medium of exchange. Many others had identified this basic function before Mises, of course, but his approach is distinct in the way it argues that the role of medium of exchange is central, and that money’s other functions—as a unit of account, for example—are derived from it. Money is primarily a means of facilitating peaceful social cooperation, and in this sense is an indispensable part of any advanced division of labor as well as of economic calculation.