Bitcoin … Monetary Nirvana?

If you don’t know what Bitcoin is, do a little research on the internet and you will 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. Also, Bitcoin transactions are supposed to be private, that is, anonymous. The most interesting thing is that Bitcoins do not exist in the real world; They only exist in computer software, like a kind of virtual reality.

The general idea is that Bitcoins are ‘mined’ … interesting term here … solving an increasingly difficult mathematical formula, more difficult as more Bitcoins are ‘mined’; Interesting again – on a computer. Once created, the new Bitcoin is placed in an electronic ‘wallet’. Then it is possible to exchange real goods or Fiat currency for Bitcoins … and vice versa. Also, as there is no central issuer of Bitcoins, everything is highly distributed, making it resistant to being ‘managed’ by the authority.

Naturally, Bitcoin advocates, those who benefit from the growth of Bitcoin, insist quite strongly that ‘sure, Bitcoin is money’ … and not only that, but that ‘it is the best money of all time, money of the future ‘etc … Well, the defenders of Fiat scream with the same force that paper money is money … and we all know that paper Fiat is not money in any way, since it lacks the most important attributes of real money. The question then is whether Bitcoin even qualifies as money … it doesn’t matter if it is the money of the future, or the best money of all time.

To find out, let’s look at the attributes that define money and see if Bitcoin qualifies. The three essential attributes of money are;

1) money is a stable store of value; the most essential attribute, since without value stability the numeraire function, or value measurement unit, fails.

2) money is the numeraire, the unit of account.

3) money is a medium of exchange … but other things can also fulfill this function, that is, direct barter, the “compensation” of the exchanged goods. Also ‘exchanging goods’ (tokens) that have temporary value; and finally mutual credit exchange; that is, to offset the value of the promises kept by exchanging invoices or promissory notes.

Compared to Fiat, Bitcoin doesn’t do that badly as a medium of exchange. Fiat is only accepted in the geographic domain of its issuer. Dollars are not good in Europe, etc. Bitcoin is accepted internationally. On the other hand, very few retailers currently accept payments in Bitcoin. Unless acceptance grows geometrically, Fiat wins … albeit at the cost of exchange between countries.

The first condition is much harsher; money must be a stable store of value … now Bitcoins have gone from a ‘value’ of $ 3.00 to around $ 1,000, in just a few short years. This is so far from being a “stable store of value”; as you can get! In fact, those earnings are a perfect example of a speculative boom … like Dutch tulip bulbs, junior mining companies, or Nortel stocks.

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 as the most important monetary measure; the ability to store value and preserve it over time. Real money, that is, gold, has demonstrated the ability to hold value not just for centuries, but for eons. Neither Fiat nor Bitcoin have this crucial ability … they both fail as money.

Finally, we come to the second attribute; that of being the numerary. Now this is really interesting, and we can see why both Bitcoin and Fiat fail as money, by looking closely at the ‘cash’ question. Numerary refers to the use of money not only to store value, but also to measure or compare value in a certain sense. In Austrian economics, it is considered impossible to actually measure value; after all, value resides only in human consciousness … and how can you really measure something in consciousness? However, through the Mengerian market action principle, which 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 the numeraire, 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 what can be exchanged … a so-called ‘basket of goods’. But this clearly implies that Fiat does not have its own value, but that the value flows from the value of the goods and services for which it can be traded. Causation flows from the “purchased” goods to the Fiat number. After all, what difference is there between a dollar bill and a hundred dollar bill, except the number printed on it … and the purchasing power of the number?

Gold, on the other hand, is not measured by what it is traded; 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 … no matter what number is etched on its surface, “face value” or otherwise. The causality is opposite to that of Fiat; Gold is measured by weight, an intrinsic quality … not by purchasing power. Now, do you have any idea the value of an ounce of dollars? There’s no such thing. Fiat is only ‘measured’ by a fleeting amount … the number printed on it, the ‘face value’.

Bitcoin is further from being the numeraire; not only is it simply a number, like Fiat … but its value is measured in Fiat! Even if Bitcoin is accepted internationally as a medium of exchange, and even if it succeeds in replacing the dollar as the accepted ‘numerary’, it will never be able to have an intrinsic measure like that of gold. Gold is unique in being measured by a true and unchanging physical quantity. Gold is unique in storing value for thousands of years. Nothing else within the reach of humanity has this unique combination of qualities.

In conclusion, while Bitcoin has some advantages over Fiat, namely anonymity and decentralization, it fails in its claim to be money. Its advantages are also questionable; the intention is to limit the ‘mining’ of Bitcoins to 26,000,000 units; that is, the ‘mining’ algorithm becomes increasingly difficult to solve, then impossible after the 26 million Bitcoins are mined. Unfortunately, this announcement could very well be Bitcoin’s death sentence; Already, some central banks have announced that Bitcoins can become a “bookable” currency.

Wow, that sounds like a big step for Bitcoin, doesn’t it? After all, the ‘big banks’ seem to be accepting the true value of Bitcoin, right? What this really means is that banks recognize that they could trade Fiat for Bitcoins … and buying the planned 26 million Bitcoins would cost a mere 26 billion fiat dollars. Twenty-six billion dollars is not even a small change for Fiat printers; This is a one-week print from the US Federal Reserve. And, once Bitcoins have been bought and stored in the Fed’s ‘wallet’ … what are they for?

There would be no Bitcoins left in circulation; a perfect corner. If there are no Bitcoins in circulation, how the heck could they be used as a medium of exchange? And what could Bitcoin issuers do to defend themselves against such a fate? Change the algorithm and increase the 26 million to … 52 million? 104 million? Join the Fiat Printing Parade? But then, according to the quantity theory of money, Bitcoin would start to lose value, just like Fiat supposedly loses value through ‘overprinting’ …

We come to the key issue; Why look for a “new money” when we already have the best money, gold? Fear of confiscation of gold? Lack of anonymity from an intrusive government? Brutal taxes? Legal tender laws for fiat money? All previous. The answer is not in a new form of money, but in a new social structure, one without Fiat, without government spying, without drones and swat equipment … without IRS, border guards, TSA thugs … one and again. A world of freedom, not tyranny. Once this is achieved, gold will resume its old and vital role as honest money … and not a moment before.