The general idea is that Bitcoins Are ‘mined’… intriguing term here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again intriguing- to a computer. Once established, the new Bitcoin is set into an electronic ‘wallet’. It’s then possible to trade actual goods or Fiat money for Bitcoins… and vice versa. Additionally, since there is no central issuer of Bitcoins, it is all highly dispersed, thus resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist fairly loudly that ‘for sure, Bitcoin is money’… and not only that, but ‘it’s the best money ever, the money of the future’, etc.. . The proponents of Fiat shout as loudly that paper money is money… and most of us know that Fiat paper is not money by any means, as it lacks the most important attributes of genuine money. The issue then is does Bitcoin even be eligible as money… never mind that it being the cash of the near future, or the best money ever.
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of trade. Fiat is only accepted in the geographical domain of its issuer. Dollars aren’t any good in Europe etc.. Bitcoin is approved internationally. On the other hand, very few retailers currently accept payment in Bitcoin. Until the acceptance grows , Fiat wins… although in the cost of exchange between countries.
The primary condition is that a lot Tougher; cash has to be a stable store of value… now Bitcoins have gone out of a ‘value’ of $3.00 to around $1,000, in just a few decades. That is about as far from being a ‘stable store of value’; as you can buy! Truly, such gains are a perfect example of a speculative boom… like Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. bitcoin revolution is an area that is just filled with helpful information, as you just have read. What I have realized is it really just will depend on your goals and needs as it relates to your unique situation. Even though it is important to every person concerned, there are important variables you should keep in mind. How each one will play out in your circumstances is largely unknown, but we each have to consider that. Here are several more equally important highlights on this important topic.
Of course, Fiat fails here as well; As an example, the US Dollar, the ‘primary’ Fiat, has dropped over 95% of its value in a couple of decades… neither fiat nor Bitcoin qualify at the most important measure of money; the capacity to store value and conserve value through time. Real money, that is Gold, has shown the ability to maintain value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as cash.
Ultimately, we come to the second Attribute; that of being the numeraire. This is actually interesting, and we can see why both Bitcoin and Fiat neglect as money, by looking closely at the question of their ‘numeraire’. Numeraire refers to the use of cash to not only save value, but to in a way step, or compare worth. In Austrian economics, it’s deemed impossible to really measure value; after all, value resides just in human comprehension… and how can anything else in understanding actually be measured? But through the principle of Mengerian market action, that’s interaction between bid and offer, market prices can be established… if just momentarily… and this market price is expressed concerning the numeraire, the most marketable good, that is money.
So how do we set the worth of Fiat… ? Through the concept of ‘buying power’… that is, the value of Fiat is determined by what it can be exchanged for… a so called ‘basket of goods’. But his clearly implies that Fiat has no value of its own, instead appreciate flows from the value of the goods and services it might be exchanged for. Causality flows from the goods ‘purchased’ into the Fiat number. After all, what difference is there between a one Dollar invoice and a hundred Dollar bill, except the number printed on it… and the purchasing power of this amount?
Gold, on the other hand, is not Measured by what it deals for; rather, uniquely, it is measured by a different physical benchmark; from its own weight, or mass. A gram of Gold is a gram of gold, and an ounce of Gold is an oz of Gold… regardless of what amount 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 electricity. Now, have you any idea of the worth of an oz of Dollars? No anything. Fiat is just ‘quantified’ with an ephemeral quantity… the number printed on it, ‘ the ‘face value’.
Bitcoin is farther away from being The numeraire; not only can it be simply a number, much as Fiat… but its value is measured in Fiat! Even if Bitcoin becomes internationally accepted as a medium of exchange, and even though it manages to replace the Dollar as the accepted ‘numeraire’, it can never have an intrinsic measure like Gold has. Gold is exceptional in being measured by a true, unchanging physical quantity. Gold is exceptional in storing worth for thousands of years. Nothing else in touch of humanity has this unique combination of qualities.