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.
Doing your conversions on your Bitcoin Profit Calculator , estimating the worth of your bitcoin, you could be forgiven for asking: is this stuff really money? It's not a crazy question.
We have, after all, been inundated in recent months and years by the condemnations and criticism from both sides of the chamber in the long running debate between fiat currency's defenders and their precious metal rivals. Both have often enough dismissed bitcoin as fools-gold. Their reasons of course are different.
Fiat currency defenders simply give no respect to any alleged money which isn't backed by a government. Without such backing, they consider it just a joke. More sophisticated versions of the case likely cite the relevance of network-effect - 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.
In this debate, bitcoin enthusiasts would side with the precious metal crowd. Fiat valuation is the down-slope of a currency. As I explained in an article at the Fiat Currency Review site, money begins as and always remains strong when it is adopted via market processes from an already widely demanded commodity. That alone prevents its corruption by government.
Whether sea shells, cattle, tobacco, salt or gold, money becomes money, in the first instance, because it is a commodity that enough people want that it can be used as a general medium of exchange or store of value. If though we concede that point (thoroughly as it pulls out the rug from under the feet of the fiat currency crowd), does it then leave bitcoin condemned by the arguments of precious metal promoters?
Gold bugs are perfectly correct in their insistence that money must be backed by a real commodity. Where they go wrong is presuming that bitcoin lacks just such a backing.
Bitcoin, in fact, is no less a commodity-money than gold or silver. This widespread confusion that it is just abstract, pixilated numbers rather misses what's really going on.
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.
And the one inescapable fact, obvious to anyone who has been following events pertinent to mining, is the extraordinary amount of electricity that is consumed in the process. As the great economist Julian Simon taught us, when prices are high in any resource, incentives drive people to innovate less expressive options.
Likely, the long run expense of Bitcoin mining will fall, but it is difficult to imagine bitcoin without electricity. The existence of the electrical grid 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.
Put in that light, then, we can see that the excavating, smelting and molding of aurous compounds into the coins and bars that constitute the commodity-backed money called gold is not any more money than the generating, conducting and programming of electricity into the mathematical calculations that produce B/bitcoin. Bitcoin no less than gold is backed by mining a natural resource from the world. That is, and always has been, real money.
Doing your conversions on your Bitcoin Profit Calculator , estimating the worth of your bitcoin, you could be forgiven for asking: is this stuff really money? It's not a crazy question.
We have, after all, been inundated in recent months and years by the condemnations and criticism from both sides of the chamber in the long running debate between fiat currency's defenders and their precious metal rivals. Both have often enough dismissed bitcoin as fools-gold. Their reasons of course are different.
Fiat currency defenders simply give no respect to any alleged money which isn't backed by a government. Without such backing, they consider it just a joke. More sophisticated versions of the case likely cite the relevance of network-effect - 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.
In this debate, bitcoin enthusiasts would side with the precious metal crowd. Fiat valuation is the down-slope of a currency. As I explained in an article at the Fiat Currency Review site, money begins as and always remains strong when it is adopted via market processes from an already widely demanded commodity. That alone prevents its corruption by government.
Whether sea shells, cattle, tobacco, salt or gold, money becomes money, in the first instance, because it is a commodity that enough people want that it can be used as a general medium of exchange or store of value. If though we concede that point (thoroughly as it pulls out the rug from under the feet of the fiat currency crowd), does it then leave bitcoin condemned by the arguments of precious metal promoters?
Gold bugs are perfectly correct in their insistence that money must be backed by a real commodity. Where they go wrong is presuming that bitcoin lacks just such a backing.
Bitcoin, in fact, is no less a commodity-money than gold or silver. This widespread confusion that it is just abstract, pixilated numbers rather misses what's really going on.
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.
And the one inescapable fact, obvious to anyone who has been following events pertinent to mining, is the extraordinary amount of electricity that is consumed in the process. As the great economist Julian Simon taught us, when prices are high in any resource, incentives drive people to innovate less expressive options.
Likely, the long run expense of Bitcoin mining will fall, but it is difficult to imagine bitcoin without electricity. The existence of the electrical grid 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.
Put in that light, then, we can see that the excavating, smelting and molding of aurous compounds into the coins and bars that constitute the commodity-backed money called gold is not any more money than the generating, conducting and programming of electricity into the mathematical calculations that produce B/bitcoin. Bitcoin no less than gold is backed by mining a natural resource from the world. That is, and always has been, real money.
About the Author:
When you've got to have 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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