Two Measures Of The Money Stock Or The U.S Economy Bitcoin Vs Goldcoin

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Bitcoin Vs Goldcoin

Bitcoin… Monetary Nirvana?

If you don’t know what Bitcoin is, look it up on the internet and you’ll find plenty… but the short story is that Bitcoin was created as a medium of exchange without a central bank or issuing bank. to be involved. Additionally, Bitcoin transactions must be private, meaning 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”… an interesting term here… by solving an increasingly complex mathematical formula – the more complex the more Bitcoins are “mined” for existence; it’s interesting again – on the computer. Once created, a new bitcoin is placed in an electronic “wallet”. Then you can trade real goods or fiat currency for bitcoins… and vice versa. Moreover, since there is no central issuer of bitcoins, they are all widely distributed, so they cannot be “managed” by the authorities.

Naturally, Bitcoin fans, those who benefit from Bitcoin’s growth, are quite vocal in insisting that “of course Bitcoin is money”… and not only that, but “it’s the best money, the money of the future”, etc. d… Well, the Fiat supporters are just as loud shouting that paper currency 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, can bitcoin be considered 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 fits the bill. Three essential attributes of money:

1) money is a stable means of preserving value; the most important attribute, for without stability of value the function of the numeraire, or unit of measurement of value, does not work.

2) money – a number, a unit of account.

3) money is a medium of exchange…but other things can also perform this function, eg direct barter, “offset” of goods being exchanged. Also “tradables” (cheats) that temporarily hold value; and finally the exchange of mutual credit; i.e. calculation of the value of fulfilled promises by exchange of promissory notes or receipts.

Compared to fiat, bitcoin is not that bad as a medium of exchange. Fiat is only accepted in the issuer’s geographic area. Dollars are not suitable in Europe etc. Bitcoin is accepted internationally. On the other hand, very few retailers currently accept payment in Bitcoin. If acceptance doesn’t grow exponentially, Fiat wins…albeit at the expense of cross-country exchange.

The first condition is much more severe; money needs to be a stable store of value… now bitcoins have gone from $3.00 to about $1000 in just a few years. It’s about as far from being a “stable store of value”; how can you get! Indeed, such advances are a prime example of a speculative boom… like Dutch tulip bulbs, or junior mining companies, or Nortel stock.

Of course, Fiat fails here too; for example, the US dollar, the “main” fiat, has lost over 95% of its value in a few decades…neither fiat nor bitcoin qualify as the most important measure of money; the ability to store value and retain value over time. Real money, i.e. gold, has shown the ability to retain value not just for centuries, but for many centuries. Neither Fiat nor Bitcoin has this important ability…both fail as money.

Finally, we come to the second attribute; that be numeraire. Now this is really interesting, and we can understand why both bitcoin and fiat do not sin as money by looking closely at the issue of “numeraire”. Numeraire refers to the use of money not only to store value, but in some sense to measure or compare value. In the Austrian economy, it is considered impossible to really measure value; after all, value resides only in the human mind… and how can anything in the mind be measured? However, due to Menger’s market principle, i.e. the interaction between bid and offer, market prices can be set… if only momentarily… and this market price is expressed in terms of numeraire, the most marketable commodity which is money.

So how do we determine the value of a Fiat…? Through the concept of “purchasing power”…that is, the value of a Fiat is determined by what it can be exchanged for…the so-called “basket of goods”. But he clearly means that Fiat has no intrinsic value, rather the value derives from the value of the goods and services for which it can be sold. Causation flows from the “purchased” goods to the Fiat number. After all, what’s the difference between a one dollar bill and a hundred dollar bill other than the number printed on it… and the purchasing power of that number?

On the other hand, gold is not measured by what it trades for; rather, unambiguously, it is measured by a different 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 what number is engraved on its surface, “face value” or otherwise. Causality is the opposite of Fiat; Gold is measured by weight, intrinsic quality…not purchasing power. Do you know how much an ounce is worth in dollars? There is no such thing. Fiat is only “measured” by an ephemeral quantity…the number printed on it, the “denomination”.

Bitcoin is further away from being digital; it’s not just just a number like Fiat…but its value is measured in Fiat! Even if bitcoin becomes an internationally recognized medium of exchange, and even if it succeeds in replacing the dollar as the accepted “number,” it can never have an intrinsic measure like gold. Gold is unique in that it is measured in a true, unchanging physical quantity. Gold holds value for millennia. Nothing else within human reach possesses such a unique combination of qualities.

In conclusion, while Bitcoin has some advantages over fiat, namely anonymity and decentralization, it does not claim to be money. Its benefits are also questionable; the goal is to limit bitcoin “mining” to 26,000,000 units; that is, the “mining” algorithm becomes harder and harder to solve, and then becomes impossible after mining 26 million bitcoins. Unfortunately, this announcement could very well be the death of Bitcoin; some central banks have already announced that Bitcoin may become a “reserve” currency.

Wow, sounds like an important step for Bitcoin, doesn’t it? After all, the “big banks” seem to be accepting the true value of Bitcoin, right? What this effectively means is that the banks are admitting that they can exchange fiat for bitcoins… and the actual purchase of the planned 26 million bitcoins will cost a paltry 26 billion fiat dollars. Twenty-six billion dollars isn’t even a pittance for Fiat printers; that’s about a week’s worth of printing just the US Fed. And if bitcoins are bought up and locked away in the Fed’s “wallet”… what useful purpose can they serve?

There will be no bitcoins left in circulation; perfect corner. If bitcoins are not 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 the 26 million to… 52 million? Up to 104 million? Join the Fiat print parade? But then, according to the quantity theory of money, Bitcoin will begin to lose value, just as fiat supposedly loses value through “overprinting”…

We come to the key question; why look for “new money” when we already have the best money, gold? Afraid of gold confiscation? Lack of anonymity from an intrusive government? Heavy taxation? Legal tender laws in fiat money? All of the above. The answer is not in a new form of money, but in a new social structure, no Fiat, no government espionage, no drones and SWAT teams… no IRS, border guards, TSA thugs… and on and on. A world of freedom, not tyranny. Once this is done, gold will resume its ancient and vital role as honest money…and not a moment sooner.

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