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Medium of Exchange

A medium of exchange is a widely accepted vehicle that is used when two or more parties want to exchange goods and services or settle debts. Since the medium of exchange itself can be exchanged for any good or service it intermediary instrument that can avoid the limitations of bartering. In bartering, goods and services offered have to be traded for goods and services desired by the counter party. Almost all forms of money act as mediums of exchange, including Bitcoin, traditional currencies like the dollar and commodity monies like gold.

The following hypothetical will explain the value of a medium of exchange: A farmer wants to go buy a tractor, but the tractor dealer doesn’t accept payment in the farmer’s wheat; it has no use to him. So the farmer sells his wheat to a baker for a medium of exchange, like Bitcoin. With a valid medium of exchange in hand, the farmer can now return back to the tractor dealer and buy a tractor by giving him his Bitcoin.