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Bitcoin Vs Goldcoin
Bitcoin… Financial Nirvana?
If you don’t know what Bitcoin is, do a little research on the internet and you’ll get a lot… but the long story short is that Bitcoin was created as a medium of exchange, without a central bank or bank of issue. being involved. Additionally, Bitcoin transactions should be private, that is, anonymous. The most interesting thing is that Bitcoins have no existence in the real world; they exist only in computer software, as a kind of virtual reality.
The general idea is that Bitcoins are “mined”… interesting term here… by solving an increasingly complex mathematical formula – the harder the more Bitcoins are “mined”; interesting again – on the computer. Once created, the new Bitcoin is placed in an electronic “wallet”. It is then possible to trade real goods or fiat currency for Bitcoins… and vice versa. Furthermore, since there is no central issuer of Bitcoins, it is all highly decentralized, so it cannot be “managed” by an authority.
Of course, the proponents of Bitcoin, those who benefit from Bitcoin’s growth, insist quite loudly that “definitely Bitcoin is money”… and not only that, but “it’s the best money ever, the money of the future”. etc… Well, Fiat proponents scream just as loudly that paper currency is money… and we all know that Fiat paper is not money by any means, as it lacks the most important attributes of real money. The question then is whether Bitcoin even qualifies as money…be it the money of the future or the best money ever.
To find out, let’s look at the defining attributes of money and see if Bitcoin fits the bill. The three important attributes of money are;
1) money is a stable store of value; the most important attribute because without stability of value the function of numeraire or unit of measure of value will fail.
2) money is a numeraire, a unit of account.
3) money is a medium of exchange… but this function can also be performed by other things, i.e. direct exchange, ‘payment’ of exchangeable goods. Also “goods” (chits) that hold value temporarily; and finally mutual credit exchange; i.e. offsetting the value of promises made through the exchange of bills or IOUs.
Compared to Fiat, Bitcoin is not doing too badly as a medium of exchange. Fiat is only accepted within the issuer’s geographic area. Dollars are not good in Europe, etc. Bitcoin is accepted internationally. On the other hand, very few retailers currently accept payments in Bitcoin. If acceptance doesn’t grow geometrically, Fiat wins…albeit at the cost of interstate exchange.
The first condition is much tougher; money needs to be a stable store of value… now Bitcoins have gone from $3.00 to about $1000 in a few years. That’s about as far as “stable store of value” goes; as you can! Indeed, such rises are a prime example of a speculative boom, such as Dutch tulips, junior mining companies, or Nortel shares.
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 retain value and retain value over time. Real money, i.e. gold, has demonstrated the ability to hold value not just for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial ability…both fail as money.
Finally we come to the second attribute; to be a numerator. Now this is really interesting and we can see why both Bitcoin and Fiat fail as money by looking closely at the “numeraire” issue. Numeraire refers to the use of money not only to store value, but also, in a sense, to measure or compare value. In Austrian economics, the actual measurement of value is considered impossible; after all, value lies only in human consciousness… and how can you really measure something in consciousness? Nevertheless, through the Mengerian principle of market operation, i.e., the interplay of supply and demand, market prices can be set…if only momentarily…and this market price is expressed in numbers, the most marketable commodity, which is money.
So how do you determine the value of a Fiat…? Through the concept of “purchasing power”…that is, the value of Fiat is determined by what it can be traded for…the so-called “basket of goods”. But this clearly suggests that Fiat has no value of its own, rather the value derives from the value of the goods and services traded with it. Causation flows from the “purchased” item 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 the number?
Gold, on the other hand, is not measured by what it is traded for; rather, it is uniquely measured by some other 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 engraved on its surface, “denomination” or otherwise. Causality is the opposite of Fiat; Gold is measured by weight, by its intrinsic quality… not by purchasing power. Do you have any idea what a dollar ounce is worth? Nothing like that. Fiat is only ‘measured’ by short-term size… by the number printed on it, the ‘face value’.
Bitcoin is beyond numeraire; it’s not just a number, just like a Fiat… but its value is measured in Fiat! Even if Bitcoin becomes internationally accepted as a medium of exchange, and even if it can replace the dollar as an accepted “numeraire”, it can never have an intrinsic dimension like gold. Gold is unique because it is measured by a true unchanging physical quantity. Gold is unique in retaining its value for thousands of years. Nothing else within human reach has this unique combination of properties.
In conclusion, while Bitcoin has some advantages over Fiat, namely anonymity and decentralization, it cannot live up to its claim of being money. Its benefits are also questionable; the goal is to limit Bitcoin mining to 26,000,000 units; this means that the mining algorithm becomes increasingly difficult to solve and impossible after mining 26 million Bitcoins. Unfortunately, this announcement could very well be Bitcoin’s death knell; Some central banks have already announced that Bitcoins may become a “reservable” currency.
Wow, sounds like an important step for Bitcoin, doesn’t it? After all, the “big banks” seem to accept the true value of Bitcoin, don’t they? What this really means is that the banks are admitting that they can exchange Fiat for Bitcoins… and the proposed purchase of 26 million Bitcoins would cost a measly 26 billion Fiat dollars. Twenty-six billion dollars isn’t even small change for Fiat printers; US Federal Reserve printing alone is about a week. And if Bitcoins were bought up and locked away in the Fed’s wallet…what useful purpose could they serve?
No Bitcoins would remain in circulation; perfect angle. If there are no Bitcoins in circulation, how could they be used as a medium of exchange? And what could Bitcoin issuers do to protect themselves from such a fate? Change the algorithm and increase the 26 million… to 52 million? to 104 million? Join the Fiat print parade? But according to the quantity theory of money, Bitcoin would begin to lose value, just as Fiat is said to lose value due to “overprinting”…
We come to the key question; why look for “new money” when we already have the best money, gold? Is it the fear of gold confiscation? Lack of anonymity from an intrusive government? Brutal taxation? Fiat money legal tender? All of the above. The answer is not in a new form of money, but in a new social structure, no Fiat, no government spying, no drones and hit squads…no IRS, border guards, TSA thugs…on and on. A world of freedom, not tyranny. Once this is achieved, gold will resume its ancient and important role as honest money… and not a moment sooner.
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