The general Notion is that Bitcoins Are ‘mined’… intriguing term here… by solving a hard mathematical formula -harder as more Bitcoins are ‘mined’ into existence; again intriguing- on a computer. Once established, the new Bitcoin is set into a digital ‘wallet’. It’s then feasible to exchange real goods or Fiat currency for Bitcoins… and vice versa. Furthermore, since there is no central issuer of Bitcoins, it’s all highly distributed, thus resistant to being ‘handled’ by authority.
Naturally proponents of Bitcoin, Those who benefit from the growth of Bitcoin, insist rather loudly that ‘for certain, Bitcoin is cash’… and not just that, but ‘it is the best money ever, the cash of the future’, etc.. . The proponents of all Fiat shout just as loudly that paper currency is money… and we all know that Fiat newspaper is not cash by any means, as it lacks the most important attributes of real cash. The question then is does Bitcoin even be eligible as cash… never mind 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 geographical domain of its issuer. Dollars aren’t any good in Europe etc.. Bitcoin is approved internationally. On the flip side, very few retailers currently accept payment in Bitcoin. Unless the approval grows geometrically, Fiat wins… although in the cost of trade between countries.
The first condition is a great deal Tougher; cash has to be a stable store of value… today Bitcoins have gone from a ‘value’ of $3.00 to about $1,000, in only a couple years. That is about as far away from being a ‘stable store of value’; as you can buy! Indeed, such gains are a perfect illustration of a speculative boom… like Dutch tulip bulbs, or real mining companies, or Nortel stocks. While this is all appropriate to your discovery, a few items about bitcoin revolution hold more weight than others. But in the end you are the only person who can correctly make that call. But we are not done, yet, and there is usually much more to be uncovered. The balance of this read holds much more that will help your specific situation. What you are about to read will significantly enhance your knowledge, and we will go even past that point, too.
Naturally, Fiat fails as well; For instance, the US Dollar, the ‘primary’ Fiat, has dropped over 95 percent of its value in a couple of decades… neither fiat nor Bitcoin qualify at the most important measure of cash; the capacity to store value and preserve value through time. Actual money, that is Gold, has shown the ability to hold value not just for centuries, except for eons. Neither Fiat nor Bitcoin has this critical capacity… both fail as money.
Ultimately, we return to the next Attribute; that of being the numeraire. This is really intriguing, and we can see why both Bitcoin and Fiat fail as cash, by looking closely at the question of the ‘numeraire’. Numeraire refers to the use of money to not just save worth, but to at a way step, or compare value. In Austrian economics, it’s considered impossible to actually quantify value; after all, value resides only in human comprehension… and how can anything in consciousness actually be measured? Nevertheless, through the principle of Mengerian market action, that’s interaction between bid and offer, market prices can be established… if just momentarily… and this market price is expressed in terms of the numeraire, the most marketable good, that’s money.
So how do we set the worth of Fiat… ? Through the idea of ‘purchasing power’… which is, the worth of Fiat depends upon what it can be exchanged for… a so called ‘basket of goods’. However, his clearly implies that Fiat has no significance of its own, but instead appreciate flows from the value of their goods and services it might be traded for. Causality flows from the goods ‘bought’ into the Fiat number. After all, what difference is there between a 1 Dollar bill and a trillion Dollar bill, except that the amount printed on it… along with the buying power of this number?
Gold, on the other hand, isn’t Measured by what it deals for; instead, uniquely, it is quantified by another physical standard; by its own weight, or mass. A g 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 contrary 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 oz of Dollars? No such thing. Fiat is just ‘measured’ with an ephemeral quantity… the amount printed on it, ‘ the ‘face value’.
Bitcoin is further away from being The numeraire; not only is it a number, much as Fiat… but its worth is quantified in Fiat! Even though Bitcoin becomes internationally recognized as a medium of exchange, and even if it succeeds to replace the Dollar as the accepted ‘numeraire’, it can never have an intrinsic measure like Gold has. Gold is exceptional in being quantified by a true, unchanging physical quantity. Gold is unique in preserving value for thousands of years. Nothing else in reach of humanity has this exceptional blend of attributes.