A Simple Introduction to Bitcoin

The general idea is that Bitcoins ‘ are ‘mined’… intriguing expression here… by solving an increasingly hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; yet again interesting- to a computer. Once established, the new Bitcoin is put into a digital ‘wallet’. It is then possible to exchange actual goods or Fiat money for Bitcoins… and vice versa. Furthermore, since there is no central issuer of Bitcoins, it’s all highly distributed, hence resistant to being ‘handled’ by authority.

Naturally proponents of Bitcoin, Those who profit from the growth of Bitcoin, insist fairly loud that ‘for certain, Bitcoin is cash’… and not only that, but ‘it’s the best money , the money of the future’, etc.. . The proponents of all Fiat shout as loudly that paper currency is cash… and we all know that Fiat paper is not money by any means, as it lacks the main attributes of real money. The issue then is does Bitcoin even qualify as money… not mind it being the money of the near future, or the best money .

Compared to Fiat, Bitcoin does not Do too badly as a medium of trade. Fiat is only accepted in the geographic domain of its own issuer. Dollars are no great in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers currently accept payment in Bitcoin. Unless the approval grows , Fiat wins… although at the cost of trade between nations.

The primary condition is a great deal Tougher; cash must be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in just a few decades. That is about as far away from being a ‘stable store of value’; since you can buy! Indeed, such profits are an ideal example of a speculative boom… like Dutch tulip bulbs, or real mining companies, or even Nortel stocks. The effects of bitcoin revolution, not only on you but many others, is a fact that has to be acknowledged. At times there is simply way too much to even try to cover in one go, and that is important for you to realize and take home. That is really a good deal when you think about it, so just the briefest moment to mention something. This is significant information that can help you, and there is no doubting that. As usual, we generally save the very finest for last.

Of course, Fiat fails here as well; For example, the US Dollar, the ‘primary’ Fiat, has lost over 95 percent of its worth in a few decades… neither fiat nor Bitcoin qualify at the most important measure of money; the capacity to store value and preserve value through time. Actual money, which is Gold, has shown the capacity to hold value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as cash.

Finally, we come to the next Attribute; this of being the numeraire. Now this is really intriguing, and we can see why the two Bitcoin and Fiat neglect as money, by looking closely at the question of the ‘numeraire’. Numeraire refers to the usage of money to not just store worth, but to in a way measure, or compare value. In Austrian economics, it’s deemed impossible to actually quantify value; after all, value resides only in human consciousness… and how can anything else in consciousness actually be quantified? But through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if only momentarily… and this industry price is expressed concerning the numeraire, the most marketable good, that’s money.

So how do we set the value of Fiat… ? Through the concept of ‘purchasing power’… which is, the worth of Fiat depends upon what it can be traded for… a so called ‘basket of goods’. But his clearly implies that Fiat has no significance of its own, but rather value flows from the worth of the goods and services it may be exchanged for. Causality flows from the goods ‘bought’ to the Fiat number. After all, what difference is there between a 1 Dollar bill and a trillion Dollar invoice, except the number printed on it… along with the buying power of this amount?

Gold, on the other hand, isn’t Measured by what it deals for; rather, uniquely, it’s quantified by another physical standard; from its own weight, or mass. A g of Gold is a gram of gold, and an ounce of Gold is an ounce of Gold… regardless of 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… maybe not by purchasing electricity. Now, have you really any notion of the worth of an oz of Dollars? No anything. Fiat is just ‘quantified’ with an ephemeral quantity… the amount printed on it, ‘ the ‘face value’.

Bitcoin is farther away from being The numeraire; not just is it simply a number, much as Fiat… but its worth is measured in Fiat! Even if Bitcoin becomes internationally recognized as a medium of exchange, and even though it succeeds to replace the Dollar as the accepted ‘numeraire’, it can never have an intrinsic measure like Gold has. Gold is unique in being measured by a real, unchanging physical quantity. Gold is unique in storing value for thousands of years. Nothing else in reach of humanity has this unique blend of qualities.

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