If you don’t know what Bitcoin is, Do a bit of research on the internet, and you will receive lots… but the brief Story is that Bitcoin was made as a medium of exchange, without a central bank Or bank of difficulty being included. Furthermore, Bitcoin transactions are assumed To be private, anonymous. Most significantly, Bitcoins have no real World existence; they exist only in computer software, as a kind of virtual reality.
The general idea is that Bitcoins Are ‘mined’… interesting term here… by solving a hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again interesting- on a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then possible to trade actual goods or Fiat currency for Bitcoins… and vice versa. Additionally, since there is not any central issuer of Bitcoins, it is all highly distributed, hence resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who profit from the growth of Bitcoin, insist fairly loud that ‘for certain, Bitcoin is cash’… and not only that, but ‘it is the best money ever, the money of their future’, etc.. . The proponents of Fiat shout just as loudly that paper money is cash… and we all know that Fiat paper isn’t money by any means, as it lacks the most important attributes of genuine money. The issue then is does Bitcoin even be eligible as cash… never mind it being the money of the near 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 geographical domain of its issuer. Dollars are no great in Europe etc.. Bitcoin is approved internationally. On the other hand, not many retailers currently accept payment in Bitcoin. Until the approval grows geometrically, Fiat wins… although at the cost of exchange between countries.
The primary condition is that a great deal Tougher; cash has to be a stable store of value… now Bitcoins have gone out of a ‘value’ of $3.00 to around $1,000, in only a few decades. This is about as far from being a ‘stable store of value’; as you can get! Truly, such gains are an ideal example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or even Nortel stocks. Ideally, just as with so many other areas regarding Bitcoins Wealth, you will need to pay more consideration to some things than others. But in the end you are the only individual who can accurately make that call. Of course there is rather a lot more to be learned. The last half of the article will offer you a lot more solid info about this. Even after what is next, we will not stop there because the best is but to come.
Naturally, Fiat fails as well; As an example, the US Dollar, the ‘main’ Fiat, has dropped over 95% of its value in a couple of decades… neither fiat nor Bitcoin qualify in the most important measure of cash; the capacity to store value and conserve value through time. Actual money, that is Gold, has shown the capacity to maintain value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as money.
Finally, we return to the second Feature; this of being the numeraire. This is actually intriguing, and we can see why both Bitcoin and Fiat fail as cash, by looking closely at the question of the ‘numeraire’. Numeraire describes the usage of cash to not just save value, but to in a way measure, or compare worth. In Austrian economics, it’s deemed impossible to really quantify value; after all, significance resides just in human consciousness… and how can anything else in understanding really be measured? 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 concerning the numeraire, the most marketable good, that’s money.
So how do we establish the value of Fiat… ? Through the idea of ‘purchasing power’… which is, the value of Fiat is determined by what it can be traded for… a so called ‘basket of goods’. However, his clearly suggests that Fiat has no value of its own, instead value flows from the value of the goods and services it might be exchanged for. Causality flows from the merchandise ‘bought’ into the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar bill, except the amount printed on it… along with the purchasing power of this number?
Gold, on the other hand, isn’t Quantified by what it deals for; instead, uniquely, it is measured by a different physical benchmark; from its own weight, or mass. A gram of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… regardless of what number is engraved on its surface, ‘face value’ or otherwise. Causality is the contrary to that of Fiat; Gold is measured by weight, an inherent quality… not by purchasing electricity. Now, have you really any notion of the value of an ounce of Dollars? No anything. Fiat is just ‘quantified’ with an ephemeral quantity… the amount printed on it, the ‘face value’.
Bitcoin is further away from being The numeraire; not just can it be a few, much as Fiat… but its value 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 accepted ‘numeraire’, it can not possess an intrinsic measure like Gold has. Gold is exceptional in being quantified by a real, unchanging physical quantity. Gold is exceptional in storing value for thousands of years. Nothing else in reach of humankind has this exceptional combination of qualities.