If you do not understand what Bitcoin is, Do a bit of research on the internet, and you will get plenty… but the brief Story is that Bitcoin was made as a medium of trade, with no central bank Or bank of issue being involved. Moreover, Bitcoin transactions are assumed To be private, that is anonymous. Most interestingly, Bitcoins have no real World presence; they exist only in computer applications, as a sort of virtual reality.
The general Notion is that Bitcoins ‘ are ‘mined’… interesting expression here… by solving an increasingly hard mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; yet again interesting- on a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then possible to exchange real goods or Fiat currency for Bitcoins… and vice versa. Additionally, since there is not any central issuer of Bitcoins, it is all highly dispersed, hence resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who profit from the growth of Bitcoin, insist rather loud that ‘for sure, Bitcoin is cash’… and not only that, but ‘it’s the best money , the cash of the future’, etc.. . The proponents of Fiat shout just as loudly that paper money is cash… and most of us know that Fiat paper isn’t cash by any means, as it lacks the main attributes of real cash. The question then is does Bitcoin even be eligible as money… never mind it being the cash of the near future, or the very best money ever. Hopefully, just as with so many other areas regarding bitcoin revolution richard branson, you will need to pay more consideration to some things than others. What is more critical for you may be less so for others, so you have to consider your unique conditions. We really are just getting going here, and hopefully you will be thrilled about what more is in store. We are saving the best for last, and you will be pleased at what you will find out. What you are about to read will significantly enhance your knowledge, and we will go even beyond that point, too.
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 other hand, very few retailers now accept payment in Bitcoin. Unless the approval grows geometrically, Fiat wins… although at the cost of trade between nations.
The first condition is a great deal Tougher; cash has to be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to around $1,000, in just a couple decades. This is about as far away from being a ‘stable store of value’; as you can get! Truly, such profits are an ideal example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or even Nortel stocks.
Of course, Fiat fails here as well; As an example, the US Dollar, the ‘main’ Fiat, has dropped over 95 percent of its worth 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, which is Gold, has shown the capacity to hold value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this critical capacity… both fail as money.
Finally, we return to the next Feature; that of being the numeraire. This is actually interesting, and we can see why the two Bitcoin and Fiat neglect as cash, by looking closely at the question of the ‘numeraire’. Numeraire describes the use of money to not just save worth, but to in a way step, or compare value. In Austrian economics, it’s deemed impossible to really measure value; after all, value resides only in human consciousness… and how can anything else in consciousness actually be measured? Nevertheless, through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if only momentarily… and this industry price is expressed concerning the numeraire, the most marketable good, that’s money.
So how do we set the value of Fiat… ? Through the idea of ‘buying power’… that is, the worth of Fiat depends upon what it can be traded for… a so called ‘basket of goods’. But his clearly suggests that Fiat has no significance of its own, rather appreciate flows from the value of their goods and services it may be traded 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 amount printed on it… along with the purchasing power of the amount?
Gold, on the other hand, isn’t Quantified by what it deals for; instead, uniquely, it is measured by another physical standard; by its own weight, or mass. A gram 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 inherent quality… maybe not by purchasing power. Now, have you really any idea of the value of an ounce of Dollars? No anything. Fiat is only ‘quantified’ by an ephemeral quantity… the amount printed on it, the ‘face value’.