Bitcoin grew up and became big money
Do bitcoins meet the requirements for our understanding of “money”?
Basically, money is an equivalent of value and thus has two functions: a
medium of exchange and a store of wealth.
(1) Money as a medium of exchange
Money saves us from constantly converting between assets. Let’s imagine two actors as an example: One wants to sell fish, the other offers wheat. Now both parties negotiate the exchange ratio, e.g. 1kg of fish for 8kg of wheat. Once this exchange ratio has been established, the next time the trade is processed faster.
If, however, an egg seller wants to join the trade, the actors would have to negotiate the following exchange rates:
Eggs vs. fish – Eggs vs. wheat
Fish vs. wheat With each additional commodity, trading becomes more complex. Exchange ratios would therefore have to be negotiated for an infinite number of combinations.
The solution? Money! So we trust that we can buy 20 rolls from the bakery with a 10 EUR note that we have received. And the baker, in turn, pays taxes on the 10 EUR, procures raw materials, covers further costs, and then hopefully there will be a profit for him.
To what extent do bitcoins meet the requirements for an exchange medium?
So that there are no unpleasant surprises after a transaction, it should be immediately apparent what value the banknote has. A counter-example would be buying a car, here it is not immediately obvious to the layman whether the car is 100% in order.
Bitcoin transactions can be viewed at any time in the public transaction log (blockchain). bitcoin grew up and became big money are therefore clearly recognizable (in contrast to cash, especially banknotes) and meet this requirement.
Goods and services of various sizes need to be paid for. From buying groceries to buying real estate. This is where a disadvantage of gold comes to light: How do I pay for my ten euro purchase with a troy ounce of gold at the bakery? Do I rasp something off with the gold file? 😉
Bitcoins can be broken down to eight decimal places: 1 BTC = 1,000 mBTC (Milli-Bitcoin) = 1,000,000 µBTC (Micro-Bitcoin) = 100,000,000 sBTC (“Satoshis”, smallest unit).
Money can be carried with you or can be called upon the go (EC card). This is one of the greatest strengths of bitcoins because they cannot even be transported! With the help of an internet connection and the private key to your own wallet, Bitcoins can be accessed regardless of national borders. Whether on the couch while shopping online, in a Parisian street café, or on the beach in Bali.
Money can change hands. Bitcoins change easily and free of charge from one address to another. The network accepts the transaction and the recipient does not have to worry about a chargeback. This is particularly attractive for merchants because credit card fraud is impossible.
Protection against forgery: The history of Bitcoins in circulation can always be traced via the public transaction log. Counterfeiting Bitcoins would therefore be equivalent to spending the same Bitcoins multiple times. By checking and confirming all transactions by the network participants, multiple expenses are prevented. Bitcoins are thus forgery-proof (in contrast to paper money or diamonds).
Try to pay for dinner with bitcoins, it won’t be easy. In the past few weeks, the number of acceptance points seems to have increased exponentially.
(2) Bitcoins as a store of wealth
To what extent do bitcoins meet the requirements for a wealth store?
Stability of the offer: The edge length of a cube, which consists of all gold from the world, is known to be 20 meters. Bitcoins are limited to 21 million pieces by the underlying algorithm, there will not be more and thus the supply is stable.
Gold has certain chemical properties that make it so attractive as an investment: It is inert, corrosion-resistant, and will still shine in 2,000 years as it does today. It can be melted down, poured into a mold, or combined with other metals using alloys. Similarly, Bitcoin has mathematical properties that make it an attractive investment. The current location of every bitcoin is known redundantly in the entire network, bitcoins do not expire (unless the plug is pulled across the entire Internet).
Security of Storage
Bitcoins can be stored safely: In a thought-purse ( “Brain-Wallet”) in the head, in an off-budget on paper in a safe, or a buried in the backyard USB stick. Thus, the cost of storage is also 0. Furthermore, Bitcoins cannot be officially confiscated as a virtual good. It cannot even be proven who is in possession of the associated private key.
The minimum requirement for a store of wealth is at least the preservation of purchasing power. Bitcoins are currently not stable in value and are subject to high volatility, which makes planning and calculation more difficult for traders who accept Bitcoin. This will remain the case for the foreseeable future.
In the next few decades, the number of bitcoin grew up and became big money generated will approach 21 million pieces and will not increase any further. This is in stark contrast to paper money: In the 2012 fiscal year, the US Federal Reserve printed dollar notes worth 1.5 billion per day. USD. In April 2013, this roughly corresponds to the total market capitalization of Bitcoins. In plain language: The US Federal Reserve prints the entire market capitalization of Bitcoin in one day!
Bitcoins are complementary to cash and gold. They will not replace cash or gold. Bitcoins are a welcome competitor to government-controlled “paper money” and in that sense “money”.
Bitcoins will occupy their own niche in which they can fully exploit their advantages and complement gold and cash in a meaningful way.
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From recent years bitcoin grew up and became big money so that many invester invest lot of money.
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