The general Notion is that Bitcoins Are ‘mined’… intriguing term here… by solving an increasingly hard mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once created, the new Bitcoin is set into an electronic ‘wallet’. It’s then possible to exchange actual goods or Fiat currency for Bitcoins… and vice versa. Furthermore, as there’s no central issuer of Bitcoins, it’s all highly distributed, hence resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist rather loud that ‘for sure, Bitcoin is money’… and not only that, but ‘it’s the best money ever, the money of their future’, etc.. . The proponents of all Fiat shout just as loudly that paper money is money… and we all know that Fiat newspaper isn’t money by any means, as it lacks the most important attributes of genuine cash. The issue then is does Bitcoin even be eligible as cash… not mind that it being the money of the near future, or the very best money .
Compared to Fiat, Bitcoin does not Do too badly as a medium of trade. Fiat is only accepted in the geographical domain of its own issuer. Dollars aren’t any good in Europe etc.. Bitcoin is approved internationally. On the other hand, not many retailers now accept payment in Bitcoin. Until the acceptance grows geometrically, Fiat wins… although at the cost of trade between nations.
The primary condition is that a lot Tougher; money has to be a stable store of value… now Bitcoins have gone from a ‘value’ of $3.00 to about $1,000, in just a couple years. This is about as far away from being a ‘stable store of value’; since you can buy! Indeed, such profits are an ideal illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or even Nortel stocks. The effects of bitcoin revolution, not only on you but many others, is a fact that has to be acknowledged. It can be difficult to cover all possible examples simply because there is so much involved. We will begin the rest of our conversation right away, but sometimes you have to stop and let things sink in a little bit. After all we have read, this is appropriate and powerful information that should be regarded. As usual, we typically save the very finest for last.
Naturally, Fiat fails as well; As an instance, the US Dollar, the ‘primary’ Fiat, has lost over 95% of its worth in a few decades… neither fiat nor Bitcoin qualify at the most important measure of money; the capacity to store value and conserve value through time. Actual money, which is Gold, has shown the ability to hold value not only for centuries, except for eons. Neither Fiat nor Bitcoin has this crucial capacity… both fail as cash.
Ultimately, we return to the second Feature; that of being the numeraire. This is actually intriguing, and we can see why both Bitcoin and Fiat neglect as cash, by looking closely at the question of the ‘numeraire’. Numeraire refers to the usage of cash to not just save worth, but to in a sense measure, or compare value. In Austrian economics, it’s deemed impossible to actually quantify value; after all, significance resides only in human consciousness… and how can anything else in understanding actually be quantified? Nevertheless, through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if just momentarily… and this industry price is expressed in terms of 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 traded for… a so called ‘basket of goods’. But his clearly implies that Fiat has no value of its own, rather appreciate flows from the worth of the goods and services it may be exchanged for. Causality flows from the goods ‘bought’ to the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar invoice, except that the amount printed on it… and the buying power of this number?
Gold, on the other hand, is not Quantified by what it deals for; instead, uniquely, it’s measured by another physical benchmark; by its 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 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 any idea of the worth of an oz of Dollars? No such thing. Fiat is just ‘measured’ with 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 number, much as Fiat… but its worth is measured in Fiat! Even if Bitcoin becomes internationally recognized as a medium of exchange, and even though it succeeds to replace the Dollar as the accepted ‘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 unique in storing worth for centuries. Nothing else in touch of humankind has this exceptional combination of attributes.