Bitcoin as a Failed Medium of Exchange from the Perspective of the Austrian School of Economics, Human Action, and PraxeologyBitcoin as a Failed Medium of Exchange from the Perspective of the Austrian School of Economics, Human Action, and Praxeology
Although Bitcoin’s economic model is widely characterized as Austrian, it adopts only a limited subset of this school’s thought: Namely, a strict focus on scarcity and deflation. Deeper economic assumptions, particularly the process of monetary emergence and development, exchange, and functional incentives, have been neglected. As one will see upon reading Human Action, the circular economy operates on financial incentives, and the situation with Bitcoin will be no different. This disconnect between ideological intent and practical design creates long-term vulnerabilities.
“There are those who see a special function of money in its serving as a standard of deferred payments. But this is clearly incorrect.” - Ludwig von Mises, The Theory of Money and Credit, Chapter 1.
Ludwig von Mises defined money as that which emerges as the most marketable good. He emphasized that money must not merely be held, but used, and that using it does not necessarily mean spending it, as Keynes suggested, but also investing in long-term projects -contrary to what most Bitcoiners do. Use, by definition, implies action. According to the Oxford Dictionary, use is “the action of using something or the state of being used.” Holding a currency, even as an investment, does not constitute use in a monetary sense. Spending, investing, exchanging, and circulating in trade -these are what constitute use.
Bitcoin, as currently designed, makes use increasingly prohibitive. Fee fluctuations and long confirmation times make daily exchange impractical. As block rewards decrease (through the Halving) and users avoid high transaction costs, the network faces the risk of being unable to finance its own security. Many users utilize Bitcoin not as money but as a speculative asset, driven by the belief that its price will continue to rise over time (often forever). This further hinders its function as a medium of exchange. However, as Mises noted, although human action is purposeful, it is inherently uncertain. Reliance on perpetual price appreciation is not a stable foundation for monetary function. Under normal circumstances, a currency must be usable; it should not be held solely in anticipation of future gains. Without consistent incentives for use and network security, Bitcoin’s economic model lacks the mechanisms necessary to function as true, sound money.
Monero corrects this failure through tail emission: It offers a continuous, fixed block reward. This reward is small (0.6 XMR per block) and constant, meaning the relative inflation rate decreases over time. Although critics claim this is inflationary, in practice, this model functions in the form of monetary entropy: There is a stable yet decreasing emission that provides long-term miner incentives while proportionally becoming less and less significant. The system is designed not for static perfection, but for dynamic sustainability.
“Profit is the driving force of the market economy.” - Ludwig von Mises, Human Action, Part 4, Chapter 15: The Market.
This design supports continuous use by keeping fees as low and predictable as possible. This is what sustains real monetary demand.
“The value of money is derived not from its quantity, but from the demand it sees as a medium of exchange.” - Ludwig von Mises, The Theory of Money and Credit, Chapter 2: The Function of Money.
Demand develops through use, not storage. A system that encourages circulation rather than hoarding remains economically viable and sustainable. Bitcoin’s security model assumes a future where fees alone will sustain mining. However, this future is uncertain. Fee markets have consistently failed -and will fail- to demonstrate the ability to cover network security costs. On one hand, when blocks are not full, miners’ revenues decline. On the other hand, when fees rise, users stop transacting. This creates a feedback loop that threatens long-term viability.
Bitcoin’s long-term security model also creates a structural pressure toward centralization. In a hypothetical scenario of global Bitcoin adoption and increased transaction volume, fees could rise significantly. Higher fees, however, will attract more miners, all competing for limited rewards. This intense competition will only favor large-scale operators with access to cheap electricity, advanced ASIC hardware, and industrial infrastructure. Smaller miners, unable to compete directly, will be forced to join massive mining pools to reduce variance through fluctuations and remain profitable. Over time, this concentrates the hashrate in a few dominant entities, weakening the decentralized nature of the network.
Monero’s tail emission preempts and eliminates this outcome from the very beginning by providing a predictable base reward, ensuring that smaller miners remain economically efficient, viable, and sustainable without fee spikes. This supports a broader miner distribution and long-term decentralization, which Mises also considered vital for preserving monetary sovereignty.
Gresham’s Law helps reveal another layer of the problem. In its classical form: “Bad money drives out good.” While this originally referred to legal tender laws, the economic behavior behind it remains valid: When multiple forms of money coexist, the money perceived as more valuable is hoarded, and the money perceived as more practical, functional, and useful is spent. Because of its volatility, high fees, and the mythos encouraging holding, Bitcoin becomes the “good” money that users avoid spending. However, this hoarding undermines its function as a medium of exchange, which is what it truly should be and was originally intended to be. At least, this is the case when considering the Bitcoin Whitepaper; otherwise, you are not a true Bitcoiner. The reality is that Bitcoin has not been used as much as it should be for a long time; it has been distanced from its intended function and removed from circulation.
What initially seemed correct is a common belief among Bitcoin advocates that zero inflation represents the ideal form of money. However, the Austrian School of Economics never made such a claim. What Austrians emphasize is not numerical scarcity, but subjective value.
“Value is not in objects, but in the minds of acting men.” - Ludwig von Mises, Human Action, Chapter 4: Valuation and Calculation.
According to Carl Menger and Ludwig von Mises, the value of money stems not from its quantity or intrinsic properties, but from the subjective value individuals assign to it based on the utility they derive in exchange. Therefore, even a perfectly scarce currency can fail as money if people no longer practically value it due to high transaction costs, low usability, poor liquidity, or lack of fungibility.
Bitcoin’s deflationary policy assumes that scarcity alone will create and preserve value. But this ignores how humans determine real value in markets. A currency’s utility depends on its ability to be used for buying, selling, saving, investing, and paying. When fees rise, payments slow down, and uncertainty regarding costs becomes the norm, subjective value decreases. The currency becomes harder to use and therefore less valuable -not because its supply changed, but because its function degraded.
Monero better preserves this subjective valuation with its tail emission, dynamic and adaptive block size, and low-fee environment. This is not merely theoretical; Monero remains usable in practice; see its adoption rates on the Darknet since 2014. Monero’s economic policy supports real-time exchange and predictable security. By reinforcing utility over idealized scarcity, Monero aligns more closely with the Austrian view that value is a result of human judgment and action, not merely mathematical certainty.
Alongside all this, fungibility is another fundamental characteristic of sound money.
“Fungibility depends on treating each unit as equivalent, regardless of who holds it or where it came from.” - Christine Desan, Making Money: Coin, Currency, and the Coming of Capitalism.
This means that every unit of money -more specifically in the case of cryptocurrencies (virtual money)- must be equal in value and free from history or metadata. Bitcoin violates this principle through its transparent ledger. In Bitcoin, coins can be blacklisted based on their past activities, resulting in unequal treatment between “clean” and “tainted” coins. This undermines Bitcoin’s ability to serve as a unit of account, as not all units hold equal value, and weakens its position as a store of value, as users cannot be certain their assets will be accepted without depreciation or scrutiny. Imagine going to a restaurant, handing over cash to pay for your meal, and the cashier refusing it on the grounds that it was previously used by criminals.
Monero enforces fungibility at the protocol level. All outputs are indistinguishable, and no transaction history is traceable. One XMR is always equal to one XMR. This ensures the currency remains neutral, interchangeable, and functional in trade and savings -essential conditions for any monetary system aiming to be universal and censorship-resistant.
Furthermore, Monero is designed for use. Its privacy features, low and stable fees, and continuous emission enable it to function where Bitcoin cannot -namely, in real-world exchange, especially in environments where censorship resistance and transactional anonymity are required. Monero’s economic model facilitates continuous participation rather than passive speculation. The difference between the two systems manifests not only in technical implementation but also in monetary consistency. Bitcoin prioritizes absolute scarcity over long-term sustainability. Monero recognizes that incentives must persist and evolve over time. A money that cannot sustain its own use through built-in (Layer 1) security incentives is doomed to fail in both theory and practice.
Although centralized monetary policies inherently undermine any claim to neutrality -as evidenced by the Cantillon Effect- money itself is fundamentally morally neutral, and therefore Bitcoin should be as well.
“There is no such thing as a neutral money policy.” - Ludwig von Mises, Human Action, Chapter 17: Indirect Exchange.
Bitcoin’s finite emission schedule attempts to enforce neutrality by eliminating future structures of human intervention such as discretion, initiative, incentives, and judgment, but in doing so, it neutralizes its own capacity to adapt and inevitably heads toward a painful process where neutrality will end. Monero, through tail emission, acknowledges that a functioning economy requires ongoing incentive structures. Thus, it balances scarcity with functionality and deflation with sustainability, ensuring neutrality and freedom from human intervention.
Consequently, Monero’s tail emission model restores the core principles that Bitcoin abandoned. It provides low and perpetually decreasing inflation while permanently securing the network. It encourages real monetary use in accordance with both Misesian theory and practical economic behavior. It resolves the contradictions in Bitcoin’s design from economic, philosophical, and functional standpoints. This brief piece has critiqued Bitcoin’s economic model from the perspective of the Austrian School of Economics, arguing that Bitcoin has failed as a true medium of exchange. Bitcoin focuses on scarcity and deflation within a very narrow framework, neglecting fundamental principles such as use, circulation, and long-term sustainability. In this context, the text demonstrates that Bitcoin encourages hoarding rather than use, suffers from high fees, slow confirmations, and an insecure long-term funding model, all of which undermine Bitcoin’s utility and decentralization. In contrast, Monero is presented as a better-designed currency: Its tail emission model, consistently low transaction fees devoid of fluctuations, strong privacy, and absolute fungibility support real-world use and miner incentives over time. Moreover, by promoting not only idealized scarcity but also subjective value, monetary use, and economic sustainability, Monero aligns better with Austrian principles (such as those of Ludwig von Mises). Bitcoin disincentivizes use; it is held primarily speculatively. High fees and diminishing rewards jeopardize its long-term security, and Gresham’s Law applies: Bitcoin is hoarded, not spent. Additionally, Bitcoin’s transparent ledger harms fungibility. Monero solves all these issues with tail emission, privacy, and predictable incentives. While Bitcoin’s rigidly deflationary design ultimately undermines its viability as real money, Monero’s flexible and use-driven model offers a more sustainable, Austrian-aligned alternative. Monero is money.