Bitcoin has a low risk of collapse Unlike traditional currencies that rely on authorities. When currencies collapse, it leads to hyperinflation or the wipeout of someone’s savings in a minute. Bitcoin exchange rate is not controlled by any government and is a digital currency available worldwide.
Bitcoin isn’t hard to carry. A billion Dollars in the Bitcoin can be saved in a memory stick and placed in one’s pocket. It’s that easy to transfer Bitcoins compared to paper money.
The general Notion is that Bitcoins ‘ are ‘mined’… intriguing term here… by solving an increasingly difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; again interesting- on a computer. Once established, the new Bitcoin is put into a digital ‘wallet’. It’s then possible to exchange actual goods or Fiat money for Bitcoins… and vice versa. Furthermore, since there is not any central issuer of Bitcoins, it is all highly distributed, hence resistant to being ‘managed’ by jurisdiction.
Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist rather loudly that ‘for certain, Bitcoin is cash’… and not only that, but ‘it’s the best money ever, the cash of the future’, etc.. . The proponents of all Fiat shout as loudly that paper currency is cash… and we all know that Fiat paper is not cash by any means, as it lacks the most important attributes of real money. The issue then is does Bitcoin even qualify as money… never mind that it being the cash of their future, or the very best money .
Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of trade. Fiat is only accepted in the geographic domain of its own issuer. Dollars aren’t any good in Europe etc.. Bitcoin is accepted internationally. On the other hand, very few retailers now accept payment in Bitcoin. Until the approval grows geometrically, Fiat wins… although in the cost of exchange between nations.
The first condition is a great deal Tougher; money has to be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in just a few decades. That is about as far away from being a ‘stable store of value’; as you can get! Indeed, such gains are a perfect example of a speculative boom… such as Dutch tulip bulbs, or real mining companies, or Nortel stocks. Hopefully, just as with so many other aspects regarding bitcoin revolution, you will need to pay more consideration to some things than others. Do take a close look at what you require, and then make a determination concerning how much different things apply to you. Of course there is rather a lot more to be learned. Still have more big pieces of the overall picture to present to you, though. Even after what is next, we will not stop there because the best is yet to come.
Of course, Fiat fails as well; As an example, the US Dollar, the ‘primary’ Fiat, has lost over 95% of its value in a couple of decades… neither fiat nor Bitcoin qualify in the most crucial measure of cash; the capacity to store value and conserve value through time. Real money, that is Gold, has shown the ability to hold value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as cash.
Ultimately, we return to the second Feature; that of being the numeraire. Now this is really interesting, and we can see why the two Bitcoin and Fiat fail as money, by looking closely at the question of the ‘numeraire’. Numeraire describes the usage of cash to not only save worth, but to in a way measure, or compare value. In Austrian economics, it is considered impossible to really measure value; after all, significance resides only in human consciousness… and how can anything in understanding 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 briefly… and this market price is expressed in terms of the numeraire, the most marketable good, that is money.
So how do we establish the value 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 suggests that Fiat has no significance of its own, instead value flows from the worth of the goods and services it might be traded for. Causality flows from the goods ‘purchased’ into the Fiat number. After all, what difference is there between a 1 Dollar invoice and a hundred Dollar bill, except the number printed on it… and the buying power of this amount?