Bitcoin has a low risk of collapse Unlike traditional currencies that rely on governments. When currencies fall, it leads to hyperinflation or the wipeout of someone’s savings in a minute. Bitcoin exchange rate is not controlled by any government and is an electronic currency available worldwide.
Bitcoin is easy to carry. A billion Dollars in the Bitcoin can be stored on a memory stick and placed in one’s pocket. It’s that easy to transfer Bitcoins compared to paper cash.
The general idea is that Bitcoins ‘ are ‘mined’… interesting expression here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; yet again interesting- on a computer. Once established, the new Bitcoin is set into a digital ‘wallet’. It’s then feasible to trade real goods or Fiat currency for Bitcoins… and vice versa. Furthermore, as there’s no central issuer of Bitcoins, it is all highly dispersed, hence resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist rather loud that ‘for sure, Bitcoin is money’… and not just that, but ‘it’s the best money , the money of the future’, etc.. . Well, the proponents of all Fiat shout as loudly that paper money is money… and we all know that Fiat paper is not cash by any means, as it lacks the main attributes of genuine cash. The issue then is does Bitcoin even qualify as money… not mind it being the cash of their future, or the best money .
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of trade. Fiat is only accepted in the geographical domain of its own issuer. Dollars aren’t any good in Europe etc.. Bitcoin is approved internationally. On the other hand, not many retailers now accept payment in Bitcoin. Until the acceptance grows geometrically, Fiat wins… although at the cost of trade between nations.
The first condition is a lot Tougher; cash must be a stable store of value… now Bitcoins have gone from a ‘value’ of $3.00 to around $1,000, in only a few decades. That is about as far away from being a ‘stable store of value’; as you can get! Truly, such gains are an ideal illustration of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or Nortel stocks. What have just talked about is crucial for your knowledge about bitcoin revolution, but there is much more to think about. However is that all there is? Not by a long shot – you really can expand your knowledge greatly, and we can help you. We know they are terrific and will aid you in your quest for solutions. Once your understanding is more complete, then you will feel more confident about the subject. But we have kept the best for last, and you will understand what we mean once you have read through.
Naturally, 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 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 capacity to maintain value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as money.
Ultimately, we come to the next Attribute; that of being the numeraire. This is actually interesting, and we can see why the two Bitcoin and Fiat fail as money, by looking closely at the question of their ‘numeraire’. Numeraire describes the use of cash to not just save worth, but to at a way measure, or compare value. In Austrian economics, it’s deemed impossible to really measure value; after all, value resides only in human consciousness… and how can anything in consciousness actually be measured? But through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if only momentarily… and this industry price is expressed in terms of the numeraire, the most marketable good, that’s money.
So how do we set the worth of Fiat… ? Through the concept of ‘purchasing power’… which is, the worth of Fiat is determined by what it can be traded for… a so called ‘basket of goods’. But his clearly suggests that Fiat has no value of its own, but rather value flows from the value of their goods and services it might be traded for. Causality flows from the merchandise ‘purchased’ into the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar invoice, except that the amount printed on it… and the purchasing power of this amount?