The general Notion is that Bitcoins ‘ are ‘mined’… intriguing expression here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again interesting- to a computer. Once created, the new Bitcoin is set into an electronic ‘wallet’. It’s then feasible to trade real goods or Fiat money for Bitcoins… and vice versa. Additionally, since there’s not any central issuer of Bitcoins, it’s all highly dispersed, hence resistant to being ‘handled’ by jurisdiction.
Naturally proponents of Bitcoin, Those who benefit from the development of Bitcoin, insist fairly loud that ‘for certain, Bitcoin is cash’… and not just that, but ‘it’s the best money , the cash of the future’, etc.. . Well, the proponents of Fiat shout as loudly that paper currency is money… and most of us know that Fiat paper isn’t cash by any means, as it lacks the most important attributes of real cash. The question then is does Bitcoin even qualify as cash… never mind that it being the money of their near 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 geographic domain of its issuer. Dollars are no great in Europe etc.. Bitcoin is accepted internationally. On the flip side, not many retailers currently accept payment in Bitcoin. Unless the approval grows , Fiat wins… although at the cost of exchange between nations.
The first condition is a lot Tougher; money has to be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to around $1,000, in only a few decades. That is about as far from being a ‘stable store of value’; as you can get! Truly, such gains are an ideal example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or Nortel stocks. While this is all appropriate to your discovery, a few items about bitcoin revolution software carry more weight than others. Do take a close look at what you require, and then make a determination concerning how much different things apply to you. As you realize, there is much more to the story than what is offered here. We are keeping the best for last, and you will be pleased at what you will find out.
Some of these suggestions really are critical to your comprehending, and there is even more going further than what is about to be covered.
Of course, Fiat fails as well; For 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 preserve value through time. Real money, which is Gold, has shown the ability to maintain value not only for centuries, except for eons. Neither Fiat nor Bitcoin has this crucial capacity… both fail as cash.
Finally, we come to the second Feature; that of being the numeraire. This is really intriguing, and we can see why both Bitcoin and Fiat fail as cash, by looking closely at the question of the ‘numeraire’. Numeraire describes the use of money to not only save value, but to at a sense step, or compare value. In Austrian economics, it’s considered impossible to really quantify value; after all, value resides only in human consciousness… and how can anything else in consciousness really be quantified? Nevertheless, 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 in terms of the numeraire, the most marketable good, that is money.
So how do we establish the value of Fiat… ? Through the idea of ‘purchasing power’… which is, the worth of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. However, his clearly implies that Fiat has no significance of its own, but rather value flows from the worth of their goods and services it may be traded for. Causality flows from the goods ‘bought’ to the Fiat number. After all, what difference is there between a 1 Dollar invoice and a trillion Dollar bill, except the amount printed on it… along with the purchasing power of this amount?
Gold, on the other hand, is not Quantified by what it deals for; instead, uniquely, it is measured by a different physical standard; by its weight, or mass. A gram 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 differently. Causality is the contrary to that of Fiat; Gold is measured by weight, an inherent quality… not by buying electricity. Now, have you any idea of the value of an oz of Dollars? No such thing. Fiat is just ‘quantified’ with an ephemeral quantity… the amount printed on it, the ‘face value’.
Bitcoin is further away from being The numeraire; not only can it be simply a few, much as Fiat… but its value is measured in Fiat! Even though Bitcoin becomes internationally accepted as a medium of trade, and even if it manages to replace the Dollar as the approved ‘numeraire’, it can not possess an intrinsic measure like Gold has. Gold is exceptional in being measured by a true, unchanging physical quantity. Gold is exceptional in preserving worth for thousands of years. Nothing else in touch of humankind has this unique blend of attributes.