Bitcoin vs Goldcoin

Bitcoin … Monetary Nirvana?

If you don’t know what Bitcoin is, do a little research on the internet, and you’ll get a lot … involved. In addition, Bitcoin transactions must be private, anonymous. Most interestingly, Bitcoins have no real existence in the world; they are only available in computer software, as a kind of virtual reality.

The general idea is that Bitcoins are ‘mined’ … interesting term here … by solving a difficult mathematical formula –is harder as more Bitcoins are ‘mined’ in existence; again interesting- a computer. Once done, the new Bitcoin is placed in an electronic ‘wallet’. Then it is possible to sell real objects or Fiat currency for Bitcoins … and vice versa. In addition, since there is no central issuer of Bitcoins, they are all highly distributed, thus resisting ‘management’ by authority.

Natural Bitcoin promoters, those who have benefited from Bitcoin’s growth, insisted loudly ‘sure, Bitcoin is money’ … etc … Well, Fiat promoters shouted just as loudly that paper money for money … and we all know that Fiat paper is not money in any way, because it lacks the most important qualities of real money. The question is whether Bitcoin qualifies as money … don’t think it’s the money of the future, or the best money ever.

To find out, let’s look at the attributes that define money, and see if Bitcoin qualifies. The three important qualities of money are;

1) money is a strong store of value; the most important attribute, as there is no stability of value the function of the nomerire, or unit of measure of value, fails.

2) money is the nomborire, the unit of account.

3) money as a medium of exchange … but other things can also perform this function ie direct barter, the ‘netting’ of things being exchanged. Also ‘trade goods’ (chits) that temporarily hold value; and finally mutual credit exchanges; ie eliminating the value of promises fulfilled through the exchange of fees or IOU’s.

Compared to Fiat, Bitcoin is less bad as a medium of exchange. Fiat is only accepted in the geographic domain of its issuer. Dollars are not good in Europe and so Bitcoin is accepted internationally. On the other hand, very few retailers now accept Bitcoin payments. Unless acceptance grows geometrically, Fiat wins … despite the cost of exchange between countries.

The first condition is more difficult; money should be a solid store of value … now Bitcoins have gone from a ‘value’ of $ 3.00 to around $ 1,000, in just a few years. It is about so far from a ‘stable value store’; as you get! In fact, such wins are a perfect example of a speculative boom … like Dutch tulip bulbs, or junior mining companies, or Nortel stocks.

Of course, Fiat also failed here; for example, the US Dollar, the ‘primary’ Fiat, has lost more than 95% of its value in a few decades … neither fiat nor Bitcoin qualifies as the most important currency; the capacity to store value and preserve value over time. Real money, which is Gold, has shown the ability to hold value not only over centuries, but over eons. Neither Fiat nor Bitcoin have this vital capacity … both fail as money.

Finally, we come to the second virtue; to be numerical. Now this is really interesting, and we can see why Bitcoin and Fiat fail as money, by looking closely at the ‘nomborire’ question. Numeraire refers to the use of money not only to store value, but to an understanding measure, or comparison of value. In Austrian economics, it is considered impossible to actually measure value; after all, value is only in the human consciousness … and how can anything be measured in consciousness? However, through the principle of Mengerian market action, which is the interaction between bid and offer, market prices can be established … if only for a while … and this market price is expressed in terms in nomborire, the best -selling benefit, money.

So how do we establish the value of Fiat …? Through the concept of ‘purchasing power’ … that is, the value of Fiat is determined by what it can sell … a so -called ‘basket of goods’. But his clear implication is that Fiat has no value in itself, rather value flows from the value of the goods and services it can sell. The cause flows from ‘bought’ items to Fiat numbers. After all, what’s the difference between a dollar bill and a hundred dollar bill, other than the number it’s printed on … and the purchasing power of the number?

Gold, on the other hand, is not measured by what it sells; however, remarkably, it is measured on another physical scale; by weight, or mass. One gram of Gold is more than one gram of Gold, and one ounce of Gold is more than one ounce of Gold … whatever number is engraved on it, ‘face value’ or otherwise. The reason is Fiat’s rival; Gold is measured by weight, an intrinsic quality … not by purchasing power. Now, do you have any idea the value of an ounce of Dollars? There is no such thing. Fiat is only ‘measured’ by an ephemeral number … the number it prints, the ‘face value’.

Bitcoin is far from numerical; not only is it a number, like Fiat … but its value is measured by Fiat! Even if Bitcoin becomes internationally accepted as a medium of exchange, and even if it manages to replace the Dollar as the accepted ‘nomborire’, it will never have an intrinsic dimension like Gold. Gold is unique in measuring true, immutable physical quantity. Gold is unique in retaining value for thousands of years. There is nothing else that mankind can reach with this unique combination of qualities.

In conclusion, while Bitcoin has some advantages over Fiat, namely anonymity and decentralization, it has failed in its monetary acquisition. Its advantages are also questionable; the intention is to limit the ‘mining’ of Bitcoins to 26,000,000 units; that is, the ‘mining’ algorithm gets harder and harder to solve, then impossible after 26 million Bitcoins have been mined. Unfortunately, this announcement could be the death knnell of Bitcoin; already, some central banks have announced that Bitcoins will be a ‘reservable’ currency.

Wow, that sounds like a big 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 to recognize banks that they can exchange Fiat for Bitcoins … and the actual purchase of 26 million Bitcoins is planned to cost as little as 26 Billion Fiat Dollars. Twenty-six billion Dollars isn’t even the slightest change for Fiat’s printers; it’s about a week’s worth of printing the U.S. Fed alone. And, once Bitcoins are bought and locked in the Fed’s ‘wallet’ … what useful purpose can they serve?

No more Bitcoins left in circulation; a perfect corner. If there are no Bitcoins in circulation, how can the Earth be used as a medium of exchange? And, what can Bitcoin issuers do to protect against such a fate? Change the algorithm and add 26 million to … 52 million? To 104 million? Join the Fiat printing parade? But then, through the quantity theory of money, Bitcoin will start to lose value, just as Fiat allegedly loses value through ‘over-printing’ …

We come to the important issue; why look for ‘new money’ when we already have the best money, Gold? Afraid to confiscate Gold? Lack of anonymity from a troubled government? Brutal tax? Fiat money legal laws? All of the above. The answer is not in a new form of money, but in a new social structure, one with no Fiat, no Government spies, no drones and swat teams … no IRS, border guards, TSA thugs … on and on. A world of freedom not oppression. When it’s over, Gold will continue its old and important role as honest money … and not a moment ago.