If you do not know what Bitcoin is, Do a little bit of research on the internet, and you will get lots… but the brief Story is that Bitcoin was made as a medium of trade, with no central bank Or bank of issue being included. Moreover, Bitcoin transactions are supposed To be private, that is anonymous. Most interestingly, Bitcoins have no actual World existence; they exist only in computer applications, as a kind of virtual reality.
The general Notion is that Bitcoins Are ‘mined’… intriguing term here… by solving an increasingly hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It’s then possible to exchange real goods or Fiat money for Bitcoins… and vice versa. Furthermore, since there’s not any central issuer of Bitcoins, it is all highly dispersed, hence resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist rather loud that ‘for sure, Bitcoin is money’… and not only that, but ‘it is the best money , the money of the future’, etc.. . The proponents of Fiat shout as loudly that paper currency is cash… and most of us know that Fiat paper isn’t money by any means, as it lacks the main attributes of real money. The question then is does Bitcoin even qualify as money… never mind that it being the cash of their future, or the best money ever.
Compared to Fiat, Bitcoin does not Do too badly as a medium of exchange. Fiat is only accepted in the geographical domain of its issuer. Dollars are no great in Europe etc.. Bitcoin is accepted internationally. On the flip side, very few retailers now accept payment in Bitcoin. Until the approval grows , Fiat wins… although at the cost of trade between countries.
The first condition is a great deal Tougher; money has to be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in just a few decades. This is about as far from being a ‘stable store of value’; since you can get! Indeed, such profits are an ideal illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or even Nortel stocks. We want to say a fast word about our conversation re Bitcoin Wealth. However, one really vital distinction here directly relates to your own aspirations. The most innocuous details can sometimes hold the most crucial keys as well as the greatest power. You realize that you are ultimately the one who knows which will have the highest impact. Here are a number of more equally important highlights on this significant topic.
Naturally, Fiat fails as well; For instance, the US Dollar, the ‘main’ Fiat, has lost over 95 percent of its value in a few decades… neither fiat nor Bitcoin qualify in the most crucial measure of money; the capacity to store value and conserve value through time. Actual money, which is Gold, has shown the capacity to hold value not only for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as cash.
Ultimately, we return to the second Feature; this of being the numeraire. Now this is actually interesting, and we can see why the two Bitcoin and Fiat neglect as money, by looking closely at the question of their ‘numeraire’. Numeraire refers to the usage of cash to not just save value, but to in a sense measure, or compare worth. In Austrian economics, it is considered impossible to really quantify value; after all, significance resides only in human consciousness… and how can anything else in understanding really be quantified? Nevertheless, through the principle of Mengerian market action, that’s interaction between bid and offer, market prices can be established… if only momentarily… and this industry price is expressed concerning the numeraire, the most marketable good, that is money.
So how do we establish the worth of Fiat… ? Through the concept of ‘buying power’… which is, the value of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. But his clearly implies that Fiat has no value of its own, but instead appreciate flows from the worth of the goods and services it might be exchanged for. Causality flows from the goods ‘bought’ to the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar invoice, except the amount printed on it… and the purchasing power of this number?
Gold, on the other hand, is not Quantified by what it trades for; instead, uniquely, it is measured by a different physical standard; by its own weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… no matter what number is engraved on its surface, ‘face value’ or differently. Causality is the contrary to that of Fiat; Gold is measured by weight, an inherent quality… maybe not by buying power. Now, have you any idea of the value of an oz of Dollars? No anything. Fiat is just ‘quantified’ with an ephemeral quantity… the amount printed on it, ‘ the ‘face value’.
Bitcoin is further away from being The numeraire; not just is it simply a few, much as Fiat… but its value is quantified in Fiat! Even if Bitcoin becomes internationally recognized as a medium of exchange, and even if it manages to replace the Dollar as the approved ‘numeraire’, it can never have an intrinsic measure like Gold has. Gold is exceptional in being quantified by a true, unchanging physical quantity. Gold is unique in preserving value for thousands of years. Nothing else in touch of humanity has this unique blend of qualities.