The general Notion is that Bitcoins Are ‘mined’… intriguing term here… by solving a hard mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once established, the new Bitcoin is put into an electronic ‘wallet’. It is then feasible to trade real goods or Fiat money for Bitcoins… and vice versa. Furthermore, as there’s not any central issuer of Bitcoins, it’s all highly dispersed, hence resistant to being ‘managed’ by jurisdiction.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist fairly loudly that ‘for sure, Bitcoin is cash’… and not just that, but ‘it is the best money , the cash of the future’, etc.. . Well, the proponents of all Fiat shout just as loudly that paper money is cash… and most of us know that Fiat newspaper is not cash by any means, as it lacks the most important attributes of real cash. The issue then is does Bitcoin even qualify as money… 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 geographic domain of its own issuer. Dollars are no good in Europe etc.. Bitcoin is approved internationally. On the flip side, not many retailers now accept payment in Bitcoin. Unless the acceptance grows , Fiat wins… although at the cost of trade between countries.
The primary condition is that a lot Tougher; money has to be a stable store of value… today Bitcoins have gone from a ‘value’ of $3.00 to around $1,000, in just a few years. This is about as far from being a ‘stable store of value’; as you can get! Truly, such profits are a perfect illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or Nortel stocks. We want to say a fast word about our discussion re bitcoin revolution. As always, though, much of what you determine you need is totally dependent on what you want to achieve. Just be sure you pick those items that will serve your requirements the most. Specifically how they effect what you do is one thing you need to carefully think about. The latter half of our talk will center on a couple highly relevant issues as they concern your possible circumstances.
Of course, Fiat fails as well; For instance, the US Dollar, the ‘primary’ Fiat, has lost over 95 percent of its worth in a couple of decades… neither fiat nor Bitcoin qualify at the most crucial measure of cash; the capacity to store value and conserve value through time. Real money, that is Gold, has shown the ability to hold value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as money.
Finally, we come to the next Attribute; that of being the numeraire. Now this is actually intriguing, and we can see why the two Bitcoin and Fiat fail as cash, by looking closely at the question of the ‘numeraire’. Numeraire refers to the use of money to not only save value, but to at a way step, or compare worth. In Austrian economics, it is considered impossible to actually measure value; after all, value resides just in human comprehension… and how can anything in understanding really be measured? But through the principle of Mengerian market action, that is interaction between bid and offer, market prices can be established… if just momentarily… and this market 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 implies that Fiat has no value of its own, but rather value flows from the value of their goods and services it might be exchanged for. Causality flows from the merchandise ‘purchased’ to the Fiat number. After all, what difference is there between a 1 Dollar invoice and a trillion Dollar invoice, except the amount printed on it… and the purchasing power of this amount?
Gold, on the other hand, is not Quantified by what it deals for; rather, uniquely, it is measured by a different physical benchmark; from its weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an oz of Gold… regardless of what number is engraved on its surface, ‘face value’ or differently. Causality is the opposite to that of Fiat; Gold is measured by weight, an inherent quality… not by purchasing electricity. Now, have you any notion of the worth of an oz of Dollars? No anything. Fiat is just ‘quantified’ with an ephemeral quantity… the number printed on it, the ‘face value’.
Bitcoin is further away from being The numeraire; not only can it be simply 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 though it succeeds to replace the Dollar as the approved ‘numeraire’, it can never possess an intrinsic measure like Gold has. Gold is unique in being quantified by a real, unchanging physical quantity. Gold is unique in preserving value for centuries. Nothing else in reach of humankind has this exceptional blend of attributes.