The general Notion is that Bitcoins ‘ are ‘mined’… intriguing expression here… by solving a difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; yet again intriguing- on a computer. Once established, the new Bitcoin is set into an electronic ‘wallet’. It is then feasible to trade real goods or Fiat money for Bitcoins… and vice versa. Additionally, as 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 growth of Bitcoin, insist fairly loudly that ‘for sure, Bitcoin is money’… and not just that, but ‘it is the best money , the cash of their future’, etc.. . The proponents of all Fiat shout just as loudly that paper currency is money… and we all know that Fiat newspaper is not money by any means, as it lacks the most important attributes of genuine money. The question then is does Bitcoin even qualify as money… never mind that it being the money of their 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 aren’t any great in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers now accept payment in Bitcoin. Unless the acceptance grows geometrically, Fiat wins… although in the cost of trade between nations.
The primary condition is that a lot Tougher; cash must 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. That is about as far away from being a ‘stable store of value’; since you can buy! Indeed, such gains are a perfect example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or Nortel stocks. As you can plainly see, what you will discover about bitcoin revolution is some points are far more important than others.
But that can vary a bit, and it really just will depend on how you want to use the information. Yet you do realize there is much more to be found out about this. We are keeping the best for last, and you will be delighted at what you will find out. What you are about to read will greatly enhance your knowledge, and we will go even past that point, too.
Naturally, Fiat fails as well; For example, the US Dollar, the ‘main’ Fiat, has lost over 95% of its worth in a couple of decades… neither fiat nor Bitcoin qualify at the most crucial measure of money; the capacity to store value and conserve value through time. Real money, which is Gold, has shown the ability to hold value not just for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial capacity… both fail as money.
Ultimately, we come to the second Feature; that of being the numeraire. This is really intriguing, and we can see why the two Bitcoin and Fiat neglect as cash, by looking closely at the question of the ‘numeraire’. Numeraire refers to the usage of money to not only store value, but to in a sense measure, or compare worth. In Austrian economics, it is considered impossible to really quantify value; after all, value resides just in human comprehension… and how can anything else in consciousness really be quantified? But through the principle of Mengerian market action, that’s interaction between bid and offer, market prices can be established… if only briefly… and this industry price is expressed in terms of the numeraire, the most marketable good, that is money.
So how do we set the value of Fiat… ? Through the idea of ‘purchasing power’… which is, the worth of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. However, 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’ to the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar invoice, except the number printed on it… and the purchasing power of the amount?
Gold, on the other hand, is not Quantified by what it trades for; rather, uniquely, it is quantified by another physical benchmark; from its own weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an oz of Gold… no matter 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 purchasing power. Now, have you any idea of the worth of an ounce of Dollars? No anything. Fiat is only ‘measured’ by an ephemeral quantity… the amount printed on it, ‘ the ‘face value’.
Bitcoin is farther away from being The numeraire; not just 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 if it succeeds to replace the Dollar as the approved ‘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 value for thousands of years. Nothing else in touch of humanity has this exceptional blend of qualities.