The general idea is that Bitcoins ‘ are ‘mined’… interesting expression here… by solving a hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; yet again intriguing- to a computer. Once created, the new Bitcoin is put into a digital ‘wallet’. It is then feasible to exchange actual goods or Fiat currency for Bitcoins… and vice versa. Furthermore, since there’s not any central issuer of Bitcoins, it’s all highly dispersed, thus resistant to being ‘managed’ by jurisdiction.
Naturally proponents of Bitcoin, Those who profit from the growth of Bitcoin, insist fairly loudly that ‘for certain, Bitcoin is money’… and not only that, but ‘it is the best money ever, the money of their future’, etc.. . Well, the proponents of all Fiat shout as loudly that paper money is money… and we all know that Fiat newspaper isn’t money by any means, as it lacks the main attributes of real money. The question then is does Bitcoin even be eligible as cash… not mind that it being the money of the future, or the best money ever.
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of exchange. Fiat is only accepted in the geographical domain of its issuer. Dollars aren’t any good in Europe etc.. Bitcoin is accepted internationally. On the flip side, very few retailers now accept payment in Bitcoin. Until the approval grows geometrically, Fiat wins… although at the cost of exchange between nations.
The first condition is a great deal Tougher; cash has to be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in only a few decades. This is about as far from being a ‘stable store of value’; as you can get! Indeed, such profits are a perfect illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or even Nortel stocks. So you can see that bitcoin revolution is a topic that you have to be mindful when you are finding out about it. One thing we tend to believe you will discover is the right info you need will take its cues from your current situation. Even though it is important to everybody concerned, there are important parameters you should keep in mind. No matter what, your careful consideration to the matter at hand is one thing you and all of us have to do. Here are several more equally important highlights on this important topic.
Of course, Fiat fails here as well; For instance, the US Dollar, the ‘main’ Fiat, has dropped 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 preserve value through time. Real money, that is Gold, has shown the capacity to maintain value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as money.
Ultimately, we return to the second Attribute; this of being the numeraire. Now this is actually interesting, and we can see why both Bitcoin and Fiat fail as money, by looking closely at the question of their ‘numeraire’. Numeraire refers to the usage of money to not only save worth, but to in a way step, or compare value. In Austrian economics, it’s considered impossible to actually quantify value; after all, value resides just in human comprehension… and how can anything in consciousness really be measured? Nevertheless, through the principle of Mengerian market action, that is interaction between offer and bid, market prices can be established… if only briefly… and this industry price is expressed concerning the numeraire, the most marketable good, that is money.
So how do we establish the value of Fiat… ? Through the concept of ‘purchasing power’… which is, the value of Fiat is determined by what it can be traded for… a so called ‘basket of goods’. But his clearly suggests 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’ into the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar bill, except that the number printed on it… and the buying power of this number?
Gold, on the other hand, is not Measured by what it deals for; rather, uniquely, it is quantified by a different physical benchmark; by its own weight, or mass. A gram of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… no matter what amount is engraved on its surface, ‘face value’ or otherwise. Causality is the contrary to that of Fiat; Gold is measured by weight, an intrinsic quality… maybe not by purchasing electricity. Now, have you really any idea of the worth of an oz of Dollars? No anything. Fiat is just ‘measured’ by an ephemeral quantity… the amount printed on it, the ‘face value’.
Bitcoin is further away from being The numeraire; not just can it be simply a number, much as Fiat… but its worth is measured in Fiat! Even if Bitcoin becomes internationally recognized as a medium of trade, and even though it succeeds to replace the Dollar as the approved ‘numeraire’, it can not have an intrinsic measure like Gold has. Gold is exceptional in being quantified by a real, unchanging physical quantity. Gold is exceptional in preserving value for centuries. Nothing else in reach of humanity has this exceptional combination of attributes.