If you don’t understand what Bitcoin is, Do a little bit of research online, and you will receive lots… but the brief Story is that Bitcoin was created as a medium of exchange, with no central bank Or bank of difficulty being involved. Furthermore, Bitcoin transactions are supposed To be personal, that is anonymous. Most significantly, Bitcoins Don’t Have Any actual World existence; they exist only in computer software, as a kind of virtual reality.
The general idea is that Bitcoins Are ‘mined’… intriguing term here… by solving an increasingly hard mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; again intriguing- to a computer. Once established, the new Bitcoin is put into a digital ‘wallet’. It’s then feasible to exchange real goods or Fiat money for Bitcoins… and vice versa. Additionally, since there is no central issuer of Bitcoins, it’s all highly distributed, thus resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the development of Bitcoin, insist rather loudly that ‘for certain, Bitcoin is money’… and not just that, but ‘it’s the best money , the money of their future’, etc.. . The proponents of all Fiat shout as loudly that paper money is money… and most of us know that Fiat newspaper isn’t money by any means, as it lacks the main attributes of genuine cash. The issue then is does Bitcoin even qualify as cash… not mind it being the money of the 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 geographical domain of its issuer. Dollars are no good in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers now accept payment in Bitcoin. Until the acceptance grows geometrically, Fiat wins… although in the cost of trade between nations.
The first condition is a great deal Tougher; money must be a stable store of value… today Bitcoins have gone from a ‘value’ of $3.00 to around $1,000, in just a couple years. This is about as far from being a ‘stable store of value’; since you can get! Indeed, such gains are an ideal example of a speculative boom… such as Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. Hopefully, just as with so many other aspects regarding Bitcoin Wealth, you will need to pay more consideration to some things than others. But in the end you are the only person who can accurately make that call. Yet you do understand there is much more to be discovered about this. The balance of this read holds much more that will help your particular situation. Even after what is next, we will not quit there because the very best is but to come.
Of course, Fiat fails as well; For example, the US Dollar, the ‘primary’ Fiat, has dropped over 95% of its worth in a couple of decades… neither fiat nor Bitcoin qualify in the most important measure of money; the capacity to store value and conserve value through time. Real money, which is Gold, has shown the capacity to hold value not only for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as money.
Finally, we come to the second Feature; this of being the numeraire. Now this is actually interesting, and we can see why both Bitcoin and Fiat neglect as money, by looking closely at the question of their ‘numeraire’. Numeraire refers to the usage of cash to not only store worth, but to at a sense step, or compare value. In Austrian economics, it’s deemed impossible to actually measure value; after all, value resides just in human comprehension… and how can anything else in consciousness actually be quantified? But through the principle of Mengerian market action, that is interaction between offer and bid, market prices can be established… if just briefly… and this industry price is expressed concerning the numeraire, the most marketable good, that’s money.
So how do we establish the worth of Fiat… ? Through the idea of ‘buying power’… that is, the value of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. But his clearly implies that Fiat has no significance of its own, but instead value flows from the worth of the goods and services it might be exchanged for. Causality flows from the goods ‘bought’ into the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar bill, except that the number printed on it… and the buying power of this amount?
Gold, on the other hand, isn’t Quantified by what it deals for; rather, uniquely, it is measured by another physical standard; from its own weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… regardless of what number is engraved on its surface, ‘face value’ or otherwise. Causality is the contrary to that of Fiat; Gold is measured by weight, an intrinsic quality… not by buying power. Now, have you any idea of the worth of an oz of Dollars? No anything. Fiat is only ‘quantified’ with an ephemeral quantity… the number printed on it, ‘ the ‘face value’.
Bitcoin is further away from being The numeraire; not just is it simply a number, much as Fiat… but its value is quantified in Fiat! Even though Bitcoin becomes internationally accepted as a medium of exchange, and even if it manages to replace the Dollar as the approved ‘numeraire’, it can never possess an intrinsic measure like Gold has. Gold is exceptional in being quantified by a real, unchanging physical quantity. Gold is unique in preserving value for thousands of years. Nothing else in touch of humankind has this unique combination of qualities.