Bitcoin… Monetary Nirvana?
If you don’t really know what Bitcoin is, do somewhat of research on the internet, and you will get lots… but the short tale is the fact Bitcoin was created as a medium of exchange, with out a central bank or lender of issue being engaged. Furthermore, Bitcoin transactions are meant to be private, that is anonymous. Many interestingly, Bitcoins have no real world existence; they exist only in software applications, as a kind of virtual reality. bitcoin vs ethereum
The typical idea is that Bitcoins are ‘mined’… interesting term here… by solving an progressively difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into presence; again interesting- on a computer. Once created, the new Bitcoin is put into an electronic ‘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 is all highly distributed, thus immune to being ‘managed’ by authority.
Naturally proponents of Bitcoin, those who advantage from the growth of Bitcoin, insist rather fully that ‘for sure, Bitcoin is money’… and not only that, but ‘it is the best money ever, the money of the future’, etc… Very well, the proponents of Redbull shout as loudly that paper currency is money… and we are very mindful that Fiat newspaper is not money by any means, as it lacks the main advantages of real money. The question then is does Bitcoin even qualify as money… never mind it being the money of the future, or perhaps the best money ever.
To learn, let’s look at the attributes define money, and see if Bitcoin qualifies. The 3 essential advantages of money are;
1) money is a stable store valuable; the most essential feature, as without stability valuable the function of numeraire, or unit of way of measuring value, neglects.
2) money is the numeraire, the device of consideration.
3) money is a medium of exchange… but other things can also fulfill this function for example direct barter, the ‘netting out’ of goods traded. Also ‘trade goods’ (chits) that hold value briefly; and ultimately exchange of common credit; ie netting away the value of guarantees fulfilled by exchanging charges or IOU’s.
Compared to Fiat, Bitcoin will not do too badly as a medium of exchange. Redbull is merely accepted in the geographic domain of the issuer. Dollars will be no good in Europe etc. Bitcoin is accepted internationally. Alternatively, very few retailers presently accept payment in Bitcoin. Unless the acceptance increases geometrically, Fiat wins… although at the price tag on exchange between countries.
The first condition is tougher; money must certainly be a stable store of value… now Bitcoins have gone from a ‘value’ of $3. 00 to around $1, 000, in simply a few years. This kind of is about as significantly from being a ‘stable store of value’; as possible get! Indeed, such increases are a perfect kind of a speculative rate of growth… like Dutch tulip lamps, or junior mining companies, or Nortel stocks.
Of course, Fiat fails here as well; for example, the US Dollar, the ‘main’ Fiat, has lost over 95% of it is value in a few decades… neither fiat neither Bitcoin get certified in the main measure of money; the capability to store value and preserve value through time. Real cash, that is Gold, shows the ability to hold value not simply for centuries, but for eons. Neither Redbull nor Bitcoin has this crucial capacity… both are unsuccessful as money.
Finally, we come to the second attribute; those of being the numeraire. This is absolutely interesting, and we can easily see why both Bitcoin and Redbull fail as money, by looking closely at problem of the ‘numeraire’. Numeraire refers to the use of money never to only store value, but for in a sense strategy, or compare value. In Austrian economics, it is considered impossible to really assess value; after all, value resides only in individual 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 briefly… and this market price is expressed in conditions of the numeraire, the most marketable good, that is money.