If you don’t understand what Bitcoin is, Do a little bit of research online, and you will get plenty… but the short 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 assumed To be personal, anonymous. Most significantly, Bitcoins have no real World presence; they exist only in computer applications, as a kind of virtual reality.
The general idea is that Bitcoins Are ‘mined’… interesting term here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once created, the new Bitcoin is set into a digital ‘wallet’. It is then feasible to trade actual goods or Fiat money for Bitcoins… and vice versa. Additionally, since there is not any central issuer of Bitcoins, it’s all highly dispersed, thus resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist rather loud that ‘for certain, Bitcoin is cash’… and not just that, but ‘it’s the best money , the cash of their future’, etc.. . Well, the proponents of Fiat shout just as loudly that paper currency is cash… and most of us know that Fiat newspaper isn’t money by any means, as it lacks the most important attributes of real cash. The question then is does Bitcoin even qualify as cash… not mind 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 geographic domain of its issuer. Dollars aren’t any good in Europe etc.. Bitcoin is accepted internationally. On the other hand, not many retailers now accept payment in Bitcoin. Until the approval grows geometrically, Fiat wins… although at the cost of trade 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 around $1,000, in only a couple years. 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… such as Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. So you can see that Bitcoins Wealth is a topic that you have to be careful when you are finding out about it. What I have realized is it really just depends on your goals and needs as it relates to your unique situation. There are always some things that will have more of an influence than others. You understand that you are ultimately the one who knows which will have the highest impact. The rest of this article will present you with a few more very hot ideas about this.
Naturally, Fiat fails here as well; For example, the US Dollar, the ‘primary’ Fiat, has lost over 95 percent 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 preserve value through time. Real money, that is Gold, has shown the ability to maintain value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial capacity… both fail as money.
Finally, we return to the next Attribute; this of being the numeraire. This is actually interesting, and we can see why the two Bitcoin and Fiat fail as money, by looking closely at the question of their ‘numeraire’. Numeraire describes the use of cash to not only store value, but to in a way step, or compare value. In Austrian economics, it’s considered impossible to actually measure value; after all, significance resides just in human comprehension… and how can anything else in understanding really be measured? But through the principle of Mengerian market action, that is interaction between bid and offer, market prices can be established… if only briefly… 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 idea of ‘buying power’… that 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 value flows from the value of the goods and services it might be exchanged for. Causality flows from the merchandise ‘purchased’ into the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar invoice, except the amount printed on it… and the buying power of this amount?
Gold, on the other hand, isn’t Quantified by what it deals for; instead, uniquely, it’s quantified 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 amount is engraved on its surface, ‘face value’ or otherwise. Causality is the opposite to that of Fiat; Gold is measured by weight, an intrinsic quality… not by buying power. Now, have you any idea of the value of an oz of Dollars? No such thing. Fiat is just ‘quantified’ by an ephemeral quantity… the number printed on it, ‘ the ‘face value’.
Bitcoin is farther away from being The numeraire; not only is it a few, much as Fiat… but its value is quantified in Fiat! Even if Bitcoin becomes internationally recognized as a medium of trade, and even if it manages to replace the Dollar as the approved ‘numeraire’, it can never possess an intrinsic measure like Gold has. Gold is unique in being measured by a true, unchanging physical quantity. Gold is exceptional in storing value for centuries. Nothing else in touch of humanity has this exceptional blend of qualities.