Bitcoin … Monetary Nirvana?
If you don’t know what Bitcoin is, do a little research on the Internet and you’ll have a lot of it … but the short story is that Bitcoin was created as a medium of exchange, without a central bank or an issuing bank being involved. In addition, Bitcoin transactions are assumed to be private, that is, anonymous. The most interesting thing is that bitcoins have no real existence; they only exist in computer software, as a kind of virtual reality.
The general idea is that bitcoins are “mined” … an interesting term here … solving an increasingly difficult, more difficult mathematical formula as more “bitcoins” are produced; again interesting: on a computer. Once created, the new Bitcoin is placed in an electronic “wallet”. Then it is possible to exchange real estate or Fiat currency for Bitcoins … and vice versa. In addition, since there is no central issuer of Bitcoins, it is widely distributed and therefore resistant to being “managed” by the authority.
Proponents of Bitcoin, of course, those who benefit from the growth of Bitcoin, strongly insist that “surely Bitcoin is money” … and not only that, but “it is the best money in history, the money of the future “, etc … Well, Fiat proponents shout just as loud that paper money is money … and we all know that Fiat paper is not money in any way, as it lacks the most important attributes of real money. The question is whether Bitcoin qualifies even as money … it doesn’t matter if it’s the money of the future or the best money in history.
To find out, let’s look at the attributes that define money and see if Bitcoin meets the requirements. The three essential attributes of money are;
1) money is a stable value; the most essential attribute, since without value stability the function of numerary, or unit of measure of value fails.
2) money is the number, the unit of account.
3) money is a means of exchange … but other things can also fulfill this function, that is, direct exchange, the “compensation” of the goods exchanged. Also “commercial goods” (lunges) that hold value temporarily; and finally mutual credit exchange; that is, offset the value of the promises fulfilled by exchanging invoices or IOUs.
Compared to Fiat, Bitcoin doesn’t work as badly as a medium of exchange. Fiat is only accepted in the geographical domain of its issuer. Dollars are not good in Europe and so on. Bitcoin is accepted internationally. On the other hand, very few retailers currently accept payment with Bitcoin. Unless acceptance grows geometrically, Fiat wins … even though it costs to trade between countries.
The first condition is much harsher; money has to be a stable value … now bitcoins have gone from a “value” of $ 3.00 to about $ 1,000 in a few years. This is almost as far from being a “stable store of value”; how to get it! In fact, these gains are a perfect example of a speculative boom … like Dutch tulip bulbs or junior mining companies or Nortel shares.
Of course, Fiat also fails 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 qualify to the extent of major money; the ability to store value and preserve value over time. Real money, that is, gold, has demonstrated the ability to maintain value not only for centuries, but also for eons. Neither Fiat nor Bitcoin have this crucial capability … they both fail like money.
Finally, we come to the second attribute; to be the cashier. Now, this is really interesting and we can see why both Bitcoin and Fiat fail as money, looking closely at the issue of ‘cash’. Numeraire refers to the use of money to not only store value, but to some extent, or compare value. In the Austrian economy, it is considered impossible to really measure value; after all, value lies only in human consciousness … and how can anything of consciousness really be measured? However, through the principle of mengerian market action, that is, the interaction between supply and supply, market prices can be established … even if only momentarily … and this market price is expressed in terms of number, the most marketable good, which is money.
So how do we establish the value of Fiat …? Through the concept of “purchasing power” … that is, the value of Fiat is determined by why it can be changed … the so-called “basket of goods”. But his clearly implies that Fiat has no value of its own, but rather value flows from the value of the goods and services for which it can be exchanged. Causation flows from the “purchased” merchandise to the Fiat number. After all, what’s the difference between a one-dollar bill and a hundred-dollar bill, except for the number printed on it … and the purchasing power of the number?
Gold, on the other hand, is not measured by what it trades; rather, it is uniquely 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 … regardless of the number that is engraved on the surface, “face value” or otherwise. The causality is the opposite of that of Fiat; Gold is measured by weight, intrinsic quality … not by purchasing power. Now, do you have any idea of the value of an ounce of dollars? There is no such thing. Fiat is only “measured” by an ephemeral quantity … the number printed on it, the “face value”.
Bitcoin is further from being the number; not only is it just a number, just like Fiat … but its value is measured in Fiat. Even if Bitcoin is accepted internationally as a medium of exchange, and even if it manages to replace the dollar as an accepted “numeraire,” it will never be able to have an intrinsic measure like gold. Gold is unique in being measured by a true and immutable physical quantity. Gold is unique in keeping value for thousands of years. Nothing else within the reach of humanity has this unique combination of qualities.
In conclusion, although Bitcoin has some advantages over Fiat, i.e. anonymity and decentralization, it fails in its claim to be money. Its advantages are also questionable; the intention is to limit Bitcoins “mining” to 26,000,000 units; that is, the “mining” algorithm becomes increasingly difficult to solve, and is impossible after the extraction of the 26 million bitcoins. Unfortunately, this announcement could very well be the cry of Bitcoin’s death; some central banks have already announced that bitcoins can become a “bookable” currency.
Wow, that sounds like an important step for Bitcoin, right? After all, the “big banks” seem to accept the true value of Bitcoin, right? What this really means is that banks recognize that they could exchange Fiat for bitcoins … and buy the planned 26 million bitcoins would cost a meager $ 26 billion Fiat. Twenty-six billion dollars is not a small change for Fiat printers; it’s worth printing the U.S. Fed in just one week. And, once bitcoins were bought and locked into the Fed’s “portfolio” … what useful purpose could they serve?
There would be no bitcoins left in circulation; a perfect corner. If there are no bitcoins in circulation, how on Earth could they be used as a medium of exchange? And, what could Bitcoin issuers do to defend themselves against this fate? Do you want to change the algorithm and increase the 26 million to … 52 million? Up to 104 million? Join the Fiat print parade But then, according to the quantitative theory of money, Bitcoin would start to lose value, just as Fiat supposedly loses value through “overprinting” …
We come to the key issue; why look for “new money” when we already have the best money, Gold? Fear of Gold Confiscation? Lack of anonymity on the part of an intrusive government? Brutal taxation? Fiat money legal currency laws? 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 drone equipment or … without IRS, border guards, TSA thugs … non-stop. A world of freedom, not tyranny. Once that is achieved, Gold will resume its old and vital role as honest money … and not a moment before.