If you do not understand what Bitcoin is, do a little research on the world wide web, and you’ll get plenty but the brief story is that Bitcoin was created as a medium of exchange, with no central bank or bank of issue being involved. Bitcoin transactions should be personal, anonymous. Bitcoins don’t have any real world presence; they exist only as a sort of virtual reality, in computer applications. The general idea is that Bitcoins are ‘mined’ interesting term here by solving an increasingly difficult mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again intriguing – to a computer. Once created, the Bitcoin is put into a digital ‘wallet’. It’s then possible to exchange real goods or Fiat money for Bitcoins. and vice versa. As there isn’t any central issuer of Bitcoins, it’s highly dispersed resistant to being ‘handled’ by authority.
Obviously proponents of Bitcoin, people who profit from the development of Bitcoin, insist fairly loudly that ‘for certain, Bitcoin is money’ and not only that, but ‘it’s the best money , the money of the future’, etc. The proponents of Fiat shout as loudly that paper money is money and most of us know that Fiat paper is not cash by any means, as it lacks the main attributes of real cash. The question then is does Bitcoin even qualify as cash never mind it being the money of the future, or the best money ever. To discover, let us determine if Bitcoin qualifies, and look at the features that define money. Money’s three attributes are;
- cash is a stable store of value; the most crucial feature, as without equilibrium of value the use of numeraire, or unit of measure of value, fails.
- cash is the numeraire, the unit of consideration.
- money is a medium of exchange but other things may also meet this purpose i.e. direct barter, the ‘netting out’ of products exchanged free bitcoin. Additionally ‘trade goods’ (chits) that maintain value temporarily; and ultimately exchange of mutual credit; i.e. netting out the value of promises fulfilled by exchanging invoices or IOU’s.
In comparison Fiat, Bitcoin doesn’t do as a medium of exchange to. Fiat is accepted in its issuer’s domain. Dollars are not any good in Europe etc. Bitcoin is accepted. On the other hand retailers accept payment. Unless the approval grows , Fiat wins although at the expense of exchange between nations. The first requirement is a great deal tougher; money has to be a stable store of value now Bitcoins have gone from a ‘value’ of $3.00 to approximately $1,000, in only a couple years. This is about as far from being a ‘store of value’; as you can get! Indeed, such profits are an ideal example of a speculative boom such as Dutch tulip bulbs, or junior mining companies, or Nortel stocks.
