Bitcoin… Monetary Nirvana?
If you don’t really know what Bitcoin is, do a lttle bit of research on the internet, and you will get lots… but the short history is the fact Bitcoin was created as a medium of exchange, with no 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 computer programs, as a kind of virtual reality. BitcoInvest.cc
The typical idea is that Bitcoins are ‘mined’… interesting term here… by solving an progressively difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into presence; 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 profit 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 in the same way 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, and also 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 feature, as without stability valuable the function of numeraire, or unit of way of measuring value, falls flat.
2) money is the numeraire, the device of consideration.
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 quickly; and ultimately exchange of shared credit; ie netting away the value of claims 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 their issuer. Dollars are not any good in Europe etc. Bitcoin is accepted internationally. However, very few retailers presently accept payment in Bitcoin. Unless the acceptance expands 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’; since you can get! Indeed, such benefits 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 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. Actual money, that is Gold, shows the ability to hold value not simply for centuries, but for eons. Neither Fusca 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 absolutely interesting, and we is able to see why both Bitcoin and Fedex 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 strategy, or compare value. In Austrian economics, it is considered impossible to truly 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 when briefly… and this market price is expressed in conditions of the numeraire, the most marketable good, that is money.