This article follows the conventional practice of using the upper case Bitcoin to refer to the program or network and the lower case bitcoin to refer to the currency.
As you crunch the numbers on your Bitcoin Profit Calculator , estimating the worth of your bitcoin in, say, dollars, you might well ask yourself: is this stuff I'm calculating really money? It's a fair question.
After all, many veterans of the long standing feud between the defenders of fiat currency and their rivals promoting precious metals have gone on record as dismissing bitcoin out of hand. Their reasons of course are different.
Defenders of fiat currency of course dismiss with derision any alleged currency not backed by government: such a thing can't in their view be serious currency. The more thoughtful of them would raise the matter of network-effects - not without some validity.
Practical merit aside though, such arguments are only the death rattle of their beloved money supply. The experience of history reveals having a government (and a government alone) as the guarantor of the money is a recipe for systemic, impoverishing theft through systematic inflation.
On the matter of fiat currency, bitcoin enthusiasts doubtlessly side with precious metal fans. Fiat decreed value is the last-call of a currency. As I explained in an article at the Fiat Currency Review site, real money originates in and maintains strength only via market processes privileging it as a demanded commodity. Only such commodity backing has any hope of withstanding government's inflationary corruption.
Whether the commodity starts as sea shells, cattle, tobacco, salt or gold, money becomes money when it starts as a commodity which people want. That alone makes it a valued medium of exchange or store of value. Does, though, conceding this popular assertion of the precious metals crowd (thoroughly as it pulls out the rug from under the feet of the fiat currency folks), expose bitcoin to the same dismissal?
When the gold bugs insist that money must be backed by something, by a real commodity, that has real value, they are exactly right. What they are wrong about is their presumption that bitcoin lacks such a backing.
Bitcoin is as much a commodity-money as gold or silver today and cattle or cowry shells in the past. The illusion that bitcoin is just abstract numbers, rendered in pixels, misses the point.
What needs to be understood is that the bitcoin currency exists as a function of the Bitcoin technology. Further, that technology, its software and hardware, is fueled by the work of what are - somewhat misleadingly - called the miners. They audit and secure the system, through solving advanced mathematical calculations that lock-in the block chain. The network, as such, is essentially the product of the math work of these miners.
Anyone who has kept tabs on the evolving circumstances of Bitcoin mining is acutely aware of one distinctly pertinent fact: mining uses extraordinary amounts of electricity. As the great economist Julian Simon revealed, in his classic book, The Ultimate Resource, high prices of a resource generates incentives to innovate less expressive alternatives.
In the long run, the costs of Bitcoin mining will likely come down. It seems difficult to imagine though bitcoin existing in the absence of electricity. The electrical system is Bitcoin's condition of possibility.
When you think about it, electricity is probably the single most important commodity in our world and likely to be so going forward. The only rival to that crown is oil and who knows what its future holds. In all likelihood, 100s (or 1000s?) of years from now, when oil has become too expensive for most of its current uses - whether generated by windmills, nuclear or hydro power plants, or some yet uninvented means - electricity will be still central to our economic life.
The excavating, smelting and molding of aurous compounds into the coins and bars that constitute the commodity-backed money called gold is no more the production of money than is the generating, conducting and programming of electricity into the mathematical calculations that produce B/bitcoin. Each is equally backed by the mining of a real resource from the natural world. And that is real money.
As you crunch the numbers on your Bitcoin Profit Calculator , estimating the worth of your bitcoin in, say, dollars, you might well ask yourself: is this stuff I'm calculating really money? It's a fair question.
After all, many veterans of the long standing feud between the defenders of fiat currency and their rivals promoting precious metals have gone on record as dismissing bitcoin out of hand. Their reasons of course are different.
Defenders of fiat currency of course dismiss with derision any alleged currency not backed by government: such a thing can't in their view be serious currency. The more thoughtful of them would raise the matter of network-effects - not without some validity.
Practical merit aside though, such arguments are only the death rattle of their beloved money supply. The experience of history reveals having a government (and a government alone) as the guarantor of the money is a recipe for systemic, impoverishing theft through systematic inflation.
On the matter of fiat currency, bitcoin enthusiasts doubtlessly side with precious metal fans. Fiat decreed value is the last-call of a currency. As I explained in an article at the Fiat Currency Review site, real money originates in and maintains strength only via market processes privileging it as a demanded commodity. Only such commodity backing has any hope of withstanding government's inflationary corruption.
Whether the commodity starts as sea shells, cattle, tobacco, salt or gold, money becomes money when it starts as a commodity which people want. That alone makes it a valued medium of exchange or store of value. Does, though, conceding this popular assertion of the precious metals crowd (thoroughly as it pulls out the rug from under the feet of the fiat currency folks), expose bitcoin to the same dismissal?
When the gold bugs insist that money must be backed by something, by a real commodity, that has real value, they are exactly right. What they are wrong about is their presumption that bitcoin lacks such a backing.
Bitcoin is as much a commodity-money as gold or silver today and cattle or cowry shells in the past. The illusion that bitcoin is just abstract numbers, rendered in pixels, misses the point.
What needs to be understood is that the bitcoin currency exists as a function of the Bitcoin technology. Further, that technology, its software and hardware, is fueled by the work of what are - somewhat misleadingly - called the miners. They audit and secure the system, through solving advanced mathematical calculations that lock-in the block chain. The network, as such, is essentially the product of the math work of these miners.
Anyone who has kept tabs on the evolving circumstances of Bitcoin mining is acutely aware of one distinctly pertinent fact: mining uses extraordinary amounts of electricity. As the great economist Julian Simon revealed, in his classic book, The Ultimate Resource, high prices of a resource generates incentives to innovate less expressive alternatives.
In the long run, the costs of Bitcoin mining will likely come down. It seems difficult to imagine though bitcoin existing in the absence of electricity. The electrical system is Bitcoin's condition of possibility.
When you think about it, electricity is probably the single most important commodity in our world and likely to be so going forward. The only rival to that crown is oil and who knows what its future holds. In all likelihood, 100s (or 1000s?) of years from now, when oil has become too expensive for most of its current uses - whether generated by windmills, nuclear or hydro power plants, or some yet uninvented means - electricity will be still central to our economic life.
The excavating, smelting and molding of aurous compounds into the coins and bars that constitute the commodity-backed money called gold is no more the production of money than is the generating, conducting and programming of electricity into the mathematical calculations that produce B/bitcoin. Each is equally backed by the mining of a real resource from the natural world. And that is real money.
About the Author:
When you need to know the scoop on all the best insights into Bitcoin and cryptocurrencies, check us out at the Bitcoin Profit Calculator site. If you're interested in currency issues, Wallace Eddington's recent article on the Pros and Cons (and Con Jobs) of fractional reserve banking is must-reading.
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