The general Notion is that Bitcoins Are ‘mined’… interesting expression here… by solving a hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; yet again interesting- to a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then feasible to exchange real goods or Fiat money for Bitcoins… and vice versa. Furthermore, as there is no central issuer of Bitcoins, it’s all highly distributed, hence resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the development of Bitcoin, insist rather loud that ‘for sure, Bitcoin is cash’… and not just that, but ‘it is the best money ever, the cash of their future’, etc.. . Well, the proponents of all Fiat shout as loudly that paper currency is money… and most of us know that Fiat paper is not money by any means, as it lacks the most important attributes of real cash. The issue then is does Bitcoin even qualify as money… not mind that it being the cash of the near future, or the best money .
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of exchange. Fiat is only accepted in the geographic domain of its issuer. Dollars are no good in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers now accept payment in Bitcoin. Until the approval grows , Fiat wins… although in the cost of exchange between nations.
The primary condition is that a lot Tougher; cash has to be a stable store of value… today Bitcoins have gone from a ‘value’ of $3.00 to about $1,000, in just a couple decades. That is about as far from being a ‘stable store of value’; as you can get! Indeed, such gains are a perfect illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or Nortel stocks. The above really only just begins to scratch the surface of what is available concerning bitcoin revolution. One thing we tend to think you will discover is the correct info you need will take its cues from your current predicament. There are always some things that will have more of an influence than others. You realize that you are ultimately the one who knows which will have the greatest impact. Here are several more equally important highlights on this significant topic.
Of course, Fiat fails here as well; For instance, the US Dollar, the ‘main’ Fiat, has lost over 95% of its value in a few decades… neither fiat nor Bitcoin qualify at the most important measure of cash; the capacity to store value and conserve value through time. Actual money, that is Gold, has shown the ability to maintain value not just for centuries, but for eons. Neither Fiat nor Bitcoin has this critical capacity… both fail as money.
Finally, we return to the next Feature; this of being the numeraire. This is really 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 money to not only save value, but to in a sense measure, or compare value. In Austrian economics, it is considered impossible to really quantify value; after all, significance resides just in human comprehension… and how can anything in understanding really be quantified? 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 idea of ‘buying power’… which is, the value of Fiat is determined by what it can be traded for… a so called ‘basket of goods’. However, his clearly suggests that Fiat has no value of its own, but instead appreciate flows from the value of the goods and services it may be traded for. Causality flows from the merchandise ‘purchased’ into the Fiat number. After all, what difference is there between a 1 Dollar bill and a hundred Dollar invoice, except that the amount printed on it… along with the buying power of the number?
Gold, on the other hand, isn’t Quantified by what it deals for; rather, uniquely, it is quantified by a different physical standard; by its weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an oz of Gold… regardless of what number is engraved on its surface, ‘face value’ or otherwise. Causality is the opposite to that of Fiat; Gold is measured by weight, an inherent quality… not by purchasing electricity. Now, have you any notion 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 farther away from being The numeraire; not only can it be simply a few, much as Fiat… but its value is quantified in Fiat! Even though Bitcoin becomes internationally recognized as a medium of exchange, and even though it manages to replace the Dollar as the accepted ‘numeraire’, it can not possess an intrinsic measure like Gold has. Gold is exceptional in being measured by a real, unchanging physical quantity. Gold is exceptional in preserving value for thousands of years. Nothing else in reach of humanity has this exceptional combination of attributes.