If you don’t understand what Bitcoin is, then Do a bit of research online, and you will receive lots… but the brief Narrative is that Bitcoin was made as a medium of exchange, with no central bank Or bank of issue being involved. Moreover, Bitcoin transactions are supposed To be private, that is anonymous. Most significantly, Bitcoins Don’t Have Any actual World presence; they exist only in computer software, as a sort of virtual reality.
The general idea is that Bitcoins Are ‘mined’… interesting term here… by solving a difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; yet again intriguing- to a computer. Once established, the new Bitcoin is put into a digital ‘wallet’. It’s then feasible to trade real goods or Fiat currency for Bitcoins… and vice versa. Furthermore, as there’s not any central issuer of Bitcoins, it’s all highly dispersed, hence resistant to being ‘managed’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist rather loud that ‘for sure, Bitcoin is money’… and not only that, but ‘it’s the best money ever, the cash of the future’, etc.. . Well, the proponents of all Fiat shout just as loudly that paper money is cash… and most of us know that Fiat paper is not money by any means, as it lacks the most important attributes of genuine money. The question then is does Bitcoin even qualify as cash… never mind that it being the cash of their future, or the very best money .
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of trade. Fiat is only accepted in the geographic domain of its issuer. Dollars are no great in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers now accept payment in Bitcoin. Unless the acceptance grows geometrically, Fiat wins… although at the cost of exchange between countries.
The first condition is a lot Tougher; money has to be a stable store of value… today Bitcoins have gone from a ‘value’ of $3.00 to about $1,000, in only a couple years. This is about as far from being a ‘stable store of value’; as you can get! Truly, such profits are a perfect example of a speculative boom… like Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. All right, we have reviewed the first couple of points regarding Bitcoins Wealth Review, of course you realize they play a significant role. Of course we strongly recommend you discover more about them.
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Naturally, 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 cash; the capacity to store value and preserve value through time. Real money, which is Gold, has shown the ability to hold value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as money.
Ultimately, we return to the next Attribute; this of being the numeraire. Now this is really intriguing, and we can see why both Bitcoin and Fiat neglect as cash, by looking closely at the question of their ‘numeraire’. Numeraire refers to the usage of cash to not only store value, but to in a way measure, or compare value. In Austrian economics, it is deemed impossible to really measure value; after all, significance resides just in human comprehension… and how can anything in understanding actually be quantified? But through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if just briefly… and this market price is expressed in terms of the numeraire, the most marketable good, that is money.
So how do we set the worth of Fiat… ? Through the concept of ‘buying power’… which is, the worth of Fiat depends upon what it can be traded for… a so called ‘basket of goods’. However, his clearly suggests that Fiat has no value of its own, instead value flows from the worth of the goods and services it might be exchanged for. Causality flows from the merchandise ‘purchased’ into the Fiat number. After all, what difference is there between a one Dollar invoice and a hundred Dollar invoice, except that the number printed on it… and the purchasing power of the amount?
Gold, on the other hand, is not Measured by what it trades for; instead, uniquely, it is quantified by a different physical standard; from its weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… no matter what amount 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 really any notion of the worth of an ounce of Dollars? No anything. Fiat is only ‘measured’ by an ephemeral quantity… the number printed on it, ‘ the ‘face value’.
Bitcoin is further away from being The numeraire; not just can it be a number, much as Fiat… but its worth is quantified in Fiat! Even though Bitcoin becomes internationally accepted as a medium of trade, and even if it succeeds to replace the Dollar as the approved ‘numeraire’, it can never have an intrinsic measure like Gold has. Gold is exceptional in being measured by a true, unchanging physical quantity. Gold is exceptional in preserving value for centuries. Nothing else in reach of humanity has this exceptional combination of attributes.