The general Notion is that Bitcoins Are ‘mined’… intriguing expression here… by solving a difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; again interesting- on a computer. Once established, the new Bitcoin is set into a digital ‘wallet’. It’s then feasible to exchange real goods or Fiat currency for Bitcoins… and vice versa. Furthermore, since there is no central issuer of Bitcoins, it’s all highly dispersed, hence resistant to being ‘handled’ by jurisdiction.
Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist fairly loudly that ‘for sure, Bitcoin is money’… and not only that, but ‘it is the best money , the money of the future’, etc.. . Well, the proponents of all Fiat shout as loudly that paper money is money… and we all know that Fiat paper is not money by any means, as it lacks the main attributes of genuine money. The question then is does Bitcoin even qualify as cash… not mind it being the cash of their near future, or the best money .
Compared to Fiat, Bitcoin does not Do too badly as a medium of exchange. Fiat is only accepted in the geographical domain of its own issuer. Dollars are no good in Europe etc.. Bitcoin is accepted internationally. On the flip side, not many retailers now accept payment in Bitcoin. Unless the acceptance grows geometrically, Fiat wins… although in the cost of trade between nations.
The primary condition is that a lot Tougher; cash has to be a stable store of value… now Bitcoins have gone out of a ‘value’ of $3.00 to around $1,000, in just a couple decades. This is about as far from being a ‘stable store of value’; as you can buy! Truly, such gains are an ideal example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or even Nortel stocks. The relative impact of bitcoin revolution software on your situation can be dramatic and cause issues of all kinds. There are so many scenarios and variations – twists and turns, that maybe you see how difficult it can be to cover all bases. We will commence the rest of our discussion right away, but sometimes you have to stop and let issues sink in a little bit. After all we have read, this is appropriate and powerful information that should be regarded. The last outstanding areas for discussion may be even more important.
Of course, Fiat fails here as well; For instance, the US Dollar, the ‘primary’ Fiat, has dropped over 95% of its value in a couple of decades… neither fiat nor Bitcoin qualify at the most crucial measure of money; the capacity to store value and conserve value through time. Actual money, that is Gold, has shown the capacity to hold value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this critical capacity… both fail as money.
Ultimately, we return to the second Feature; that of being the numeraire. Now this is really intriguing, and we can see why the two Bitcoin and Fiat neglect as cash, by looking closely at the question of their ‘numeraire’. Numeraire describes the usage of cash to not just save value, but to at a way measure, or compare worth. In Austrian economics, it is deemed impossible to actually quantify value; after all, value resides just in human comprehension… and how can anything else in consciousness 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 momentarily… and this market price is expressed concerning the numeraire, the most marketable good, that is money.
So how do we establish the worth of Fiat… ? Through the idea of ‘buying power’… that is, the worth of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. But his clearly implies that Fiat has no value of its own, rather appreciate flows from the value of the goods and services it may be exchanged for. Causality flows from the merchandise ‘purchased’ to the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar invoice, except that the number printed on it… and the purchasing power of the number?
Gold, on the other hand, is not Quantified by what it deals for; rather, uniquely, it is quantified by another physical benchmark; by its 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 inherent quality… not by buying electricity. Now, have you any notion of the value of an oz of Dollars? No such thing. Fiat is just ‘quantified’ with 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 measured in Fiat! Even if Bitcoin becomes internationally recognized as a medium of trade, and even if it succeeds to replace the Dollar as the approved ‘numeraire’, it can never possess an intrinsic measure like Gold has. Gold is unique in being measured by a real, unchanging physical quantity. Gold is exceptional in preserving value for thousands of years. Nothing else in reach of humanity has this exceptional blend of qualities.