Bitcoin has a reduced risk of collapse Unlike traditional currencies that rely on authorities. When currencies collapse, it contributes to hyperinflation or the wipeout of someone’s savings in a minute. Bitcoin exchange rate isn’t regulated by any government and is an electronic money available worldwide.
Bitcoin is easy to carry. A billion Bucks in the Bitcoin can be saved on a memory stick and placed in one’s pocket. It’s so easy to transport Bitcoins compared to paper cash.
The general idea is that Bitcoins ‘ are ‘mined’… interesting term here… by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again intriguing- on a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then possible to exchange actual goods or Fiat currency for Bitcoins… and vice versa. Furthermore, since there’s not any central issuer of Bitcoins, it’s all highly dispersed, hence resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who profit from the growth of Bitcoin, insist fairly loudly that ‘for sure, Bitcoin is cash’… and not just that, but ‘it is the best money , the cash of the future’, etc.. . Well, the proponents of Fiat shout as loudly that paper currency is cash… and most of us know that Fiat paper is not cash by any means, as it lacks the most important attributes of real cash. The issue then is does Bitcoin even qualify as cash… never mind it being the money of the near future, or the very best money ever.
Compared to Fiat, Bitcoin does not Do too badly as a medium of exchange. Fiat is only accepted in the geographical domain of its issuer. Dollars aren’t any great in Europe etc.. Bitcoin is approved internationally. On the other hand, very few retailers now accept payment in Bitcoin. Until the approval grows geometrically, Fiat wins… although in the cost of trade between countries.
The primary condition is a great deal Tougher; cash must be a stable store of value… now Bitcoins have gone from a ‘value’ of $3.00 to about $1,000, in only a few years. That is about as far away from being a ‘stable store of value’; as you can get! Indeed, such gains are an ideal example of a speculative boom… like Dutch tulip bulbs, or real mining companies, or even Nortel stocks. All right, we have gone over the first couple of points concerning bitcoin revolution, of course you recognize they play a significant role. However is that all there is? Not by a long shot – you really can expand your knowledge greatly, and we will help you. We know they are terrific and will aid you in your quest for solutions. However, we always stress that anyone takes a closer look at the overall big picture as it relates to this subject. But we have saved the best for last, and you will know what we mean as soon as you have read through.
Naturally, Fiat fails here as well; For instance, the US Dollar, the ‘main’ Fiat, has lost over 95% of its worth in a couple of decades… neither fiat nor Bitcoin qualify in the most crucial measure of money; the capacity to store value and preserve value through time. Actual money, which is Gold, has shown the capacity to maintain value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this critical capacity… both neglect as cash.
Ultimately, we return to the second Attribute; that of being the numeraire. Now this is really intriguing, and we can see why both Bitcoin and Fiat neglect as money, by looking closely at the question of the ‘numeraire’. Numeraire describes the use of cash to not just store worth, but to in a sense step, or compare worth. In Austrian economics, it is deemed impossible to actually quantify value; after all, value resides only in human comprehension… and how can anything else in understanding actually be quantified? Nevertheless, through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if only briefly… and this industry price is expressed in terms of the numeraire, the most marketable good, that’s money.
So how do we set the worth of Fiat… ? Through the concept of ‘buying power’… that is, the value of Fiat is determined by what it can be traded for… a so called ‘basket of goods’. However, his clearly implies that Fiat has no significance of its own, instead value flows from the value of the goods and services it might be traded for. Causality flows from the merchandise ‘bought’ to the Fiat number. After all, what difference is there between a one Dollar bill and a trillion Dollar invoice, except the amount printed on it… along with the buying power of the amount?