Bitcoin... Monetary Nirvana?
In the event that you don't understand what Bitcoin is, do a bit of research on the web, and you are certain to get plenty... however the short story is that Bitcoin was created as a moderate of exchange, without a central bank or bank of issue being involved. Furthermore, Bitcoin transactions are allowed to be private, that is anonymous. Most interestingly, Bitcoins don't have any real world existence; they exist only in computer software, as a kind of virtual reality.
The overall idea is that Bitcoins are 'mined'... interesting term here... by solving an increasingly difficult mathematical formula -more difficult as more Bitcoins are 'mined' into existence; again interesting- on a computer. 코인리딩 Once created, the new Bitcoin is put in a digital 'wallet' ;.It is then possible to trade real goods or Fiat currency for Bitcoins... and vice versa. Furthermore, as there is no central issuer of Bitcoins, it's all highly distributed, thus resistant to being 'managed' by authority.
Naturally proponents of Bitcoin, those who take advantage of the growth of Bitcoin, insist rather loudly that 'for sure, Bitcoin is money'... and not just that, but 'it is the greatest money ever, the money of the future', etc... Well, the proponents of Fiat shout just as loudly that paper currency is money... and most of us realize that Fiat paper is not money in the slightest, since it lacks the most important attributes of real money. The question then is does Bitcoin even qualify as money... never mind it being the money into the future, or the best money ever.
To discover, let's go through the attributes that define money, and see if Bitcoin qualifies. The three essential attributes of money are;
1) money is a stable store of value; probably the most essential attribute, as without stability of value the event of numeraire, or unit of way of measuring value, fails.
2) money may be the numeraire, the machine of account.
3) money is just a medium of exchange... but other things may also fulfill this function ie direct barter, the 'netting out' of goods exchanged. Also 'trade goods' (chits) that hold value temporarily; and finally exchange of mutual credit; ie netting out the worthiness of promises fulfilled by exchanging bills or IOU's.
In comparison to Fiat, Bitcoin does not do too badly as a moderate of exchange. Fiat is just accepted in the geographic domain of its issuer. Dollars are no good in Europe etc. Bitcoin is accepted internationally. On another hand, not many retailers currently accept payment in Bitcoin. Unless the acceptance grows geometrically, Fiat wins... although at the expense of exchange between countries.
The initial condition will be a lot tougher; money must certanly be a stable store of value... now Bitcoins have gone from the 'value' of $3.00 to around $1,000, in just a couple of years. This really is about as definately not being fully a 'stable store of value'; as you will get! Indeed, such gains certainly are a perfect exemplory instance of a speculative boom... like Dutch tulip bulbs, or junior mining companies, or Nortel stocks.
Needless to say, Fiat fails here as well; as an example, the US Dollar, the 'main' Fiat, has lost over 95% of its value in a few decades... neither fiat nor Bitcoin qualify in the most important way of measuring money; the capability to store value and preserve value through time. Real cash, that is Gold, has shown the capability to hold value not just for centuries, however for eons. Neither Fiat nor Bitcoin has this crucial capacity... both fail as money.
Finally, we come to the next attribute; that of being the numeraire. Now that is really interesting, and we could see why both Bitcoin and Fiat fail as money, by looking closely at the question of the 'numeraire' ;.Numeraire refers to the use of money not to only store value, but to in a feeling measure, or compare value. In Austrian economics, it is considered impossible to actually measure value; in the end, value resides only in human consciousness... and how can anything in consciousness actually be measured? Nevertheless, through the principle of Mengerian market action, that is interaction between bid and offer, market prices can be established... only if momentarily... and this market price is expressed when it comes to the numeraire, probably the most marketable good, that is money.
So how do we establish the worthiness of Fiat... ? Through the thought of 'purchasing power'... that is, the worthiness of Fiat is determined by what it can be traded for... a so called 'basket of goods' ;.But his clearly means that Fiat has no value of a unique, rather value flows from the worthiness of the goods and services it could be traded for. Causality flows from the goods 'bought' to the Fiat number. All things considered, what difference can there be between a one Dollar bill and 100 Dollar bill, except the number printed on it... and the purchasing power of the number?
Gold, on another hand, is not measured by what it trades for; rather, uniquely, it's measured by another physical standard; by its weight, or mass. A gram of Gold is just a gram of gold, and an ounce of Gold is an ounce of Gold... no real matter what number is engraved on its surface, 'face value' or otherwise. Causality is the opposite compared to that of Fiat; Gold is measured by weight, an intrinsic quality... not by purchasing power. Now, have you any notion of the worthiness of an ounce of Dollars? No such thing. Fiat is just 'measured' by an ephemeral quantity... the number printed about it, the 'face value' ;.
Bitcoin is farther away from being the numeraire; not only is it really several, much as Fiat... but its value is measured in Fiat! Even though Bitcoin becomes internationally accepted as a moderate of exchange, and even when it manages to displace the Dollar as the accepted 'numeraire', it may not have an intrinsic measure like Gold has. Gold is unique in being measured by a true, unchanging physical quantity. Gold is unique in storing value for thousands of years. Nothing else in reach of humanity has this unique mix of qualities.
In conclusion, while Bitcoin has some advantages over Fiat, namely anonymity and decentralization, it fails in its claim to being money. Its advantages are also questionable; the intent would be to limit the 'mining' of Bitcoins to 26,000,000 units; that is, the 'mining' algorithm gets harder and harder to fix, then impossible after the 26 million Bitcoins are mined. Unfortunately, this announcement could well be the death knell of Bitcoin; already, some central banks have announced that Bitcoins may develop into a 'reservable' currency.