How Bitcoin Works

The general Notion is that Bitcoins Are ‘mined’… interesting expression here… by solving an increasingly difficult mathematical formula -more difficult as more Bitcoins are ‘mined’ into existence; yet again interesting- to a computer. Once created, the new Bitcoin is put into an electronic ‘wallet’. It is then feasible to exchange actual goods or Fiat currency for Bitcoins… and vice versa. Furthermore, as there is not any central issuer of Bitcoins, it is all highly distributed, thus resistant to being ‘managed’ by authority.

Naturally proponents of Bitcoin, Those who profit from the development of Bitcoin, insist fairly loudly that ‘for certain, Bitcoin is money’… and not just that, but ‘it’s the best money ever, the money of their future’, etc.. . Well, the proponents of Fiat shout just as loudly that paper currency is cash… and we all know that Fiat paper isn’t money by any means, as it lacks the most important attributes of real money. The question then is does Bitcoin even qualify as money… not mind that it being the cash of their future, or the best money .

Compared to Fiat, Bitcoin doesn’t Do too badly as a medium of trade. Fiat is only accepted in the geographical domain of its own issuer. Dollars are no good in Europe etc.. Bitcoin is approved internationally. On the other hand, not many retailers now accept payment in Bitcoin. Until the acceptance grows geometrically, Fiat wins… although in the cost of trade between countries.

The first condition is that a great deal Tougher; money must be a stable store of value… today Bitcoins have gone out of a ‘value’ of $3.00 to about $1,000, in only a few years. This is about as far from being a ‘stable store of value’; since you can get! Indeed, such gains are an ideal illustration of a speculative boom… such as Dutch tulip bulbs, or junior mining companies, or even Nortel stocks. The effects of bitcoin revolution app, not only on you but many others, is a fact that has to be acknowledged. It can be challenging to cover all possible scenarios simply because there is so much involved. So we feel this is just an excellent time to take a break and examine what has just been covered. In light of all that is available, and there is a lot, then this is a great time to be reading this. As usual, we generally save the very best for last.

Of course, Fiat fails here as well; For example, the US Dollar, the ‘primary’ Fiat, has dropped over 95 percent of its worth in a few decades… neither fiat nor Bitcoin qualify at the most crucial measure of money; the capacity to store value and conserve value through time. Actual money, which is Gold, has shown the capacity to hold value not only for centuries, but for eons. Neither Fiat nor Bitcoin has this crucial capacity… both neglect as cash.

Finally, we return to the next Attribute; that of being the numeraire. This is really interesting, and we can see why both Bitcoin and Fiat neglect as money, by looking closely at the question of the ‘numeraire’. Numeraire refers to the use of money to not just store worth, but to at a way measure, or compare value. In Austrian economics, it is deemed impossible to really quantify value; after all, value resides only in human consciousness… and how can anything in understanding really be quantified? But through the principle of Mengerian market action, that’s interaction between offer and bid, market prices can be established… if only momentarily… and this market price is expressed concerning the numeraire, the most marketable good, that’s money.

So how do we set the worth of Fiat… ? Through the concept of ‘purchasing power’… that is, the worth of Fiat is determined by what it can be exchanged for… a so called ‘basket of goods’. But his clearly suggests that Fiat has no value of its own, but rather value flows from the worth of the goods and services it may be exchanged for. Causality flows from the goods ‘purchased’ to the Fiat number. After all, what difference is there between a one Dollar bill and a hundred Dollar invoice, except the number printed on it… along with the buying power of this amount?

Gold, on the other hand, is not Quantified by what it deals for; instead, uniquely, it’s quantified by a different physical benchmark; from its own 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 to that of Fiat; Gold is measured by weight, an intrinsic quality… maybe not by buying electricity. Now, have you any notion of the value of an ounce of Dollars? No such thing. Fiat is only ‘measured’ by an ephemeral quantity… the number printed on it, the ‘face value’.

Bitcoin is further away from being The numeraire; not just is it a number, much as Fiat… but its worth is measured in Fiat! Even though Bitcoin becomes internationally recognized as a medium of trade, and even though it succeeds to replace the Dollar as the accepted ‘numeraire’, it can not possess an intrinsic measure like Gold has. Gold is unique in being quantified by a true, unchanging physical quantity. Gold is unique in preserving value for thousands of years. Nothing else in reach of humankind has this unique blend of qualities.

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