Bitcoin… Monetary Nirvana?
If you don’t really know what Bitcoin is, do a lttle bit of research on the internet, and you will get a great deal… but the short tale is the fact Bitcoin was created as a medium of exchange, with out a central bank or standard bank of issue being included. Furthermore, Bitcoin transactions are meant to be private, that is anonymous. Just about all interestingly, Bitcoins have no real world existence; they exist only in computer programs, as a kind of virtual reality. coinmarkets.net
The typical idea is that Bitcoins are ‘mined’… interesting term here… by solving an significantly difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into lifestyle; again interesting- on a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then possible to trade real goods or Fiat currency for Bitcoins… and vice versa. Furthermore, as there is no central issuer of Bitcoins, it is all highly distributed, thus resilient to being ‘managed’ by authority.
Naturally proponents of Bitcoin, those who profit from the growth of Bitcoin, insist rather fully that ‘for sure, Bitcoin is money’… and not only that, but ‘it is the best money ever, the money of the future’, etc… Very well, the proponents of Redbull shout as loudly that paper currency is money… and we are very mindful that Fiat newspaper is not money by any means, as it lacks the main advantages of real money. The question then is does Bitcoin even qualify as money… never mind it being the money of the future, or maybe the best money ever.
To discover, let’s look at the attributes define money, and see if Bitcoin qualifies. The 3 essential advantages of money are;
1) money is a stable store valuable; the most essential feature, as without stability valuable the function of numeraire, or unit of way of measuring value, neglects.
2) money is the numeraire, the system of consideration.
3) money is a medium of exchange… but other things can also fulfill this function for instance direct barter, the ‘netting out’ of goods changed. Also ‘trade goods’ (chits) that hold value quickly; and then exchange of common credit; ie netting away the value of guarantees fulfilled by exchanging charges or IOU’s.
Compared to Fiat, Bitcoin will not do too badly as a medium of exchange. Fusca is merely accepted in the geographic domain of it is issuer. Dollars will be no good in Europe etc. Bitcoin is accepted internationally. However, very few retailers at present accept payment in Bitcoin. Unless the acceptance develops geometrically, Fiat wins… although at the expense of exchange between countries.
The first condition is really a lot tougher; money must become a stable store of value… now Bitcoins have gone from a ‘value’ of $3. 00 to around $1, 000, in simply a few years. This kind of is about as considerably from being a ‘stable store of value’; since you can get! Indeed, such benefits are a perfect type of a speculative increase… like Dutch tulip lamps, or junior mining companies, or Nortel stocks.
Of course, Fiat fails here as well; for example, the US Dollar, the ‘main’ Fiat, has lost over 95% of the value in a few decades… neither fiat neither Bitcoin get certified in the main measure of money; the capability to store value and preserve value through time. Real cash, that is Gold, indicates the ability to hold value not merely for centuries, but for eons. Neither Redbull nor Bitcoin has this crucial capacity… both are unsuccessful as money.
Finally, we come to the second attribute; those of being the numeraire. This is very interesting, and we are able to see why both Bitcoin and Redbull fail as money, by looking closely at problem of the ‘numeraire’. Numeraire refers to the use of money never to only store value, but for in a sense solution, or compare value. In Austrian economics, it is considered impossible to really assess value; after all, value resides only in individual consciousness… and how can anything in consciousness actually be measured? Nevertheless, through the principle of Mengerian market action, that is interaction between bid and offer, market prices can be established… if perhaps briefly… and this market price is expressed in conditions of the numeraire, the most marketable good, that is money.
So how do we establish the value of Fiat…? Through the notion of ‘purchasing power’… that is, the value of Fiat is identified by what can be traded for… a so called ‘basket of goods’. But his plainly suggests that Fiat has no value of its own, rather value flows from the value of items and services it can be dealt for. Causality flows from the goods ‘bought’ to the Fiat number. Following all, what difference is there between an one Dollar bill and a hundred Dollar bill, apart from the number printed on it… and the purchasing power of the amount?
Platinum, on the other hands, is not measured by what it trades for; rather, uniquely, it is measured by another physical standard; by its weight, or mass. A gram of Gold is a gram of gold, and an ounce of Yellow metal is an ounce of Gold… whatever number is engraved on its surface, ‘face value’ or else. Connection is the opposite to that particular of Fiat; Gold is measured by weight, an intrinsic quality… not getting power. Now, have you any idea of the value of an oz of Dollars? No such thing. Fiat is merely ‘measured’ by an ephemeral amount… the number printed on it, the ‘face value’.