Bitcoin … Monetary nirvana?
If you don’t know what bitcoin is, do a little research online and you’ll get a lot … but the short story is that bitcoin was created as a medium of exchange, without a central bank or issuing bank. be involved. In addition, transactions with bitcoins must be private, that is, anonymous. The most interesting thing is that bitcoins do not exist in the real world; they exist only in computer software as some kind of virtual reality.
The general idea is that bitcoins are “mined” … an interesting term here … by solving an increasingly complex mathematical formula – more complex than more bitcoins are “mined”; again interesting – on the computer. Once created, the new bitcoin is placed in an e-wallet. You can then trade real goods or fiat currency for bitcoin … and vice versa. In addition, since there is no central issuer of bitcoins, they are all very common and therefore cannot be “managed” by the authorities.
Naturally, proponents of bitcoin, those who benefit from the growth of bitcoin, quite loudly insist that “definitely bitcoin is money” … and not only that, but also “it’s the best money ever, the money of the future” . etc … Well, Fiat fans are just as loudly shouting that paper currency is money … and we all know that Fiat paper is not money at all, because it lacks the most important attributes of real money. The question is whether you can qualify bitcoin as money … it doesn’t matter if it’s the money of the future or the best money ever.
To find out, let’s look at the attributes that define money and see if bitcoin matches. Three main attributes of money:
1) money is a stable store of value; the most essential attribute, because without value stability the numeraire function, or unit of measure, does not work.
2) money is a counter, a unit of account.
3) money is a means of exchange … but this function can be performed by other things, such as direct barter, “offset” of goods exchanged. Also “merchandise” (cheats) that temporarily store value; and finally the exchange of mutual credit; i.e. crediting the value of promises made by exchanging bills or conversations.
Compared to Fiat, bitcoin doesn’t work as badly as a medium of exchange. Fiat is accepted only in the geographical domain of its issuer. Dollars are unusable in Europe, etc. Bitcoin is accepted internationally. On the other hand, very few sellers now accept payment in bitcoins. If recognition does not grow geometrically, Fiat will win … albeit at the cost of exchanges between countries.
The first condition is much stricter; money should be a stable store of value … Now bitcoins have increased from the “value” of $ 3.00 to about $ 1,000 in just a few years. This is about as far from being a “stable storehouse of value”; how can you get! Indeed, such revenues are a great example of a speculative boom … like the bulbs of Dutch tulips, or junior mining companies, or shares of Nortel.
Of course, Fiat does not work here; for example, the US dollar, the “main” fiat, has lost more than 95% of its value in a few decades … neither fiat nor bitcoin meet the most important indicators of money; the ability to store value and store value over time. Real money, that is, gold, has demonstrated the ability to preserve value not only for centuries but for many eras. Neither Fiat nor Bitcoin have such an important ability … both fail like money.
Finally, we approach the second attribute; what to be a counter. Now it’s really interesting, and we can understand why both bitcoin and fiat fail as money by carefully considering the “counter”. Numeraire refers to the use of money not only to preserve value but also to in some sense measure or compare value. In Austrian economics it is considered impossible to actually measure value; after all, value is only in human consciousness … and how can anything be measured in consciousness? However, using Menger’s principle of market action, that is, the interaction between supply and demand, market prices can be set … at least for a moment … and this market price is expressed in quantities of the most marketable commodity that is money.
So how do we determine the cost of a Fiat …? Through the concept of “purchasing power” … that is, Fiat’s value is determined by what it can be sold for … the so-called “basket of goods”. But he clearly implies that Fiat has no value of its own, and the value derives from the value of the goods and services for which it can be traded. The causal link flows from the “purchased” product to the Fiat number. After all, what’s the difference between a one-hundred-hundred-dollar bill other than the number printed on it … and the purchasing power of the figure?
Gold, on the other hand, is not measured by what it trades for; rather, unambiguously, it is measured by another 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 … no matter what number is engraved on its surface, “face value” or otherwise. Causality is the opposite of Fiat’s cause; Gold is measured by weight, intrinsic quality … not purchasing power. And now, do you have any idea about the value of an ounce of dollars? There is no such thing. Fiat is “measured” only by the ephemeral value … the number printed on it, the “face value”.
Bitcoin is even further from being a counter; it’s not just a figure like Fiat … but its value is measured in Fiat! Even if bitcoin becomes internationally recognized as a medium of exchange, and even if it manages to replace the dollar as an accepted “figure,” it can never have an internal measure like gold. Gold is unique in that it is measured by a true, unchanging physical quantity. Gold is unique in preserving value for thousands of years. Nothing else that is available to humanity has this unique combination of qualities.
In conclusion, while Bitcoin has some advantages over Fiat, namely anonymity and decentralization, it may not be money. Its benefits are also questionable; the goal is to limit the “mining” of bitcoins to 26,000,000 units; that is, the “mining” algorithm becomes harder and harder to solve, and then impossible after mining 26 million bitcoins. Unfortunately, this ad could well be a death knell for Bitcoin; already some central banks have announced that bitcoin could become a “reserved” currency.
Wow, that sounds like a serious move for bitcoin, right? After all, “big banks” seem to accept the true value of bitcoin, right? In fact, it means that banks recognize that they can trade fiats for bitcoin … and in fact buying the planned 26 million bitcoins will cost a paltry 26 billion fiat dollars. Twenty-six billion dollars is not a small change for Fiat printers; only the U.S. Fed issues about a week. And if bitcoins have been sold out and locked in the Fed’s “wallet” … what useful purpose can they serve?
There would be no bitcoins left in circulation; perfect corner. If there are no bitcoins in circulation, how can they be used as a medium of exchange? And what can bitcoin issuers do to protect themselves from such a fate? Change the algorithm and increase 26 million to … 52 million? Up to 104 million? Join the Fiat printing parade? But then, according to the quantitative theory of money, bitcoin would begin to lose value, as if Fiat is losing value through “reprint” …
We approach the key issue; why look for “new money” when we already have the best money, Golda? Fear of gold confiscation? Lack of anonymity from an intrusive government? Brutal taxation? Laws on the legal payment account of fiat money? All of the above. The answer is not in a new form of money, but in a new social structure, without Fiat, without government espionage, without drones and special forces … without the IRS, border guards, bandits from the TSA … and so on. A world of freedom, not tyranny. Once this is done, gold will regain its ancient and vital role as honest money … and not a minute earlier.