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 tale is the fact Bitcoin was created as a medium of exchange, with no central bank or standard bank of issue being engaged. Furthermore, Bitcoin transactions are meant to be private, that is anonymous. Just about all interestingly, Bitcoins have no real world existence; they exist only in software applications, as a kind of virtual reality. [img]
The overall idea is that Bitcoins are ‘mined’… interesting term here… by solving an progressively 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 resilient 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 discover, 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 characteristic, as without stability valuable the function of numeraire, or unit of way of measuring value, does not work out.
2) money is the numeraire, the machine of accounts.
3) money is a medium of exchange… but other things can also fulfill this function for example direct barter, the ‘netting out’ of goods sold. Also ‘trade goods’ (chits) that hold value briefly; and then exchange of communal credit; ie netting away the value of pledges fulfilled by exchanging expenses or IOU’s.
Compared to Fiat, Bitcoin will not do too badly as a medium of exchange. Fusca is merely accepted in the geographic domain of the issuer. Dollars are not any good in Europe etc. Bitcoin is accepted internationally. Alternatively, very few retailers at present accept payment in Bitcoin. Unless the acceptance develops geometrically, Fiat wins… although at the expense of exchange between countries.
The first condition is tougher; money must become 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’; since you can get! Indeed, such increases are a perfect type of a speculative increase… like Dutch tulip lights, 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 the value in a few decades… neither fiat or 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 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 very interesting, and we is able to see why both Bitcoin and Redbull fail as money, by looking closely at problem of the ‘numeraire’. Numeraire refers to the use of money to never only store value, but for in a sense check, or compare value. In Austrian economics, it is considered impossible to really evaluate value; after all, value resides only in human being 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.