Bitcoin… Monetary Nirvana?
If you don’t really know what Bitcoin is, do somewhat of research on the internet, and you will get a lot… but the short account is the fact Bitcoin was created as a medium of exchange, with out a central bank or loan company 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. BitcoInvest.cc
The overall idea is that Bitcoins are ‘mined’… interesting term here… by solving an more and more difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into lifestyle; 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 tolerant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, those who gain 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 comprise 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, falls flat.
2) money is the numeraire, the machine of bank account.
3) money is a medium of exchange… but other things can also fulfill this function for instance direct barter, the ‘netting out’ of goods traded. Also ‘trade goods’ (chits) that hold value briefly; and ultimately exchange of communal 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. Fedex is merely accepted in the geographic domain of it is issuer. Dollars will be no good in Europe etc. Bitcoin is accepted internationally. Alternatively, very few retailers at the moment accept payment in Bitcoin. Unless the acceptance increases geometrically, Fiat wins… although at the expense of exchange between countries.
The first condition is really a lot tougher; money must be considered 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 much from being a ‘stable store of value’; as possible get! Indeed, such profits are a perfect form of a speculative growth… like Dutch tulip light bulbs, 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, has demonstrated the ability to hold value not merely for centuries, but for eons. Neither Fedex nor Bitcoin has this crucial capacity… both are unsuccessful as money.