Is Digital Currency Really Currency? How It Differs from Traditional Money

Does Digital Currency Actually Count as "Currency"?

"Is digital currency really currency?" This seemingly simple question actually spans economics, law, and technology. Different people from different perspectives will give entirely different answers. Today, we'll break this question down thoroughly.

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First, Let's Clarify: What Is "Currency"?

In economics, currency must simultaneously serve three basic functions:

Medium of Exchange

The most fundamental function of currency is to buy goods and services. You can buy anything with RMB, making it a qualified medium of exchange.

Unit of Account

Currency can put a price on goods. A bottle of water costs 3 yuan, a phone costs 5,000 yuan — that's the unit of account function.

Store of Value

You put money in the bank, and a year later it still holds roughly the same value (inflation aside). That's the store of value function.

Does Digital Currency Meet These Three Criteria?

As a Medium of Exchange

Cryptocurrencies like Bitcoin can indeed be used to purchase goods and services. Tesla once accepted Bitcoin payments, and El Salvador even made Bitcoin legal tender. But in reality, the number of merchants accepting cryptocurrency remains very limited — far less widespread than fiat currencies.

Verdict: Partially met, but far from reaching fiat currency levels.

As a Unit of Account

Bitcoin's price is extremely volatile — in 2024 alone it went from $40,000 to over $100,000. Such drastic swings make it very difficult to use as a standard for pricing goods. No merchant wants to price items in something whose value changes daily.

Verdict: Essentially unmet.

As a Store of Value

Over the long term, Bitcoin's value has indeed grown. But in the short term, prices can halve. If you bought Bitcoin at the end of 2021, your assets might have shrunk by over 70% by the end of 2022. This volatility makes it a risky store of value.

Verdict: Debatable — seems viable long-term, but very risky short-term.

Different Meanings of "Digital Currency"

Many people treat "digital currency" as a single concept, but it actually encompasses at least three very different things:

Cryptocurrency

Decentralized digital assets like Bitcoin and Ethereum. No government backing — value is determined by market supply and demand.

Stablecoins

Digital tokens like USDT and USDC pegged 1:1 to the US dollar. They attempt to combine the technical advantages of cryptocurrency with the value stability of fiat currency.

Central Bank Digital Currencies (CBDCs)

Digital forms of fiat currency issued by central banks, such as China's digital yuan. These are the only digital currencies with legal "currency" status.

How Different Authorities Define It

China's Position

The People's Bank of China has explicitly stated that Bitcoin and other virtual currencies are not money but "virtual commodities." Meanwhile, China is actively advancing the digital yuan — this is the digital currency China recognizes.

The US Position

The US SEC tends to classify most crypto assets as "securities" rather than currency. However, Bitcoin is categorized as a "commodity" by the CFTC (Commodity Futures Trading Commission).

El Salvador's Position

El Salvador established Bitcoin as legal tender in 2021, becoming the first country in the world to do so.

The Unique Value of Digital Currency

Although most cryptocurrencies aren't currently recognized as "currency," they possess unique values that traditional currencies lack:

Decentralization

Not controlled by any single institution — no one can freeze your Bitcoin account (as long as you hold your own private keys).

Borderless Transfers

Transfer money to anywhere in the world within minutes, free from banking hours and international wire transfer restrictions.

Transparency and Traceability

All transaction records are permanently stored on the blockchain, verifiable by anyone.

Scarcity

Bitcoin's total supply is capped at 21 million coins — this deflationary design gives it scarcity properties similar to gold.

Future Possibilities

As technology develops and regulation matures, the "currency properties" of digital currency may gradually strengthen. Bitcoin's Lightning Network enables small payments, and stablecoins are finding increasingly widespread use in cross-border payments.

But for now at least, it's premature to say "digital currency is currency." A more accurate description would be: it's an emerging digital asset class with certain monetary properties, but one that hasn't yet fully acquired all the functions of traditional currency.

Conclusion

Is digital currency actually currency? From a strict economics and legal perspective, most cryptocurrencies currently are not. But they represent an entirely new way of storing and transmitting value with unlimited future potential. Understanding these conceptual distinctions will help you approach cryptocurrency investing more rationally.