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.
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.
Notwithstanding a certain practical merit, though, such arguments are the death rattle of a dying currency. History shows us, time and again, fiat currency is a recipe for monetary decrepitude, not to mention systemic theft, through 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 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?
Certainly the gold bugs are correct to emphasize money as necessarily being backed by a real commodity, with real value. Where they go astray, though, is in their premature dismissal of bitcoin as lacking 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.
Once this is understood, the major, salient fact about mining is the extraordinary amount of electricity consumed in the process. The great economist, Julian Simon, explained long ago that when prices of any resource are high incentives are generated for people to innovate less expressive solutions.
No doubt, in the long run, the costs of Bitcoin mining will reduce, but it seems hard to imagine how bitcoin could exist without electricity. It is the existence of an electrical system that makes Bitcoin possible. Without it, there would be no bitcoin.
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.
Consider that aurous compounds have to be excavated, smelted and molded into coins and bars to be commodity-backed money known as gold. What's so different from the process of generating, conducting and programming electricity into the mathematical calculations that produce B/bitcoin? Both are equally backed by mining a resource from the natural world. However you look at it, that is real (commodity backed) 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.
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.
Notwithstanding a certain practical merit, though, such arguments are the death rattle of a dying currency. History shows us, time and again, fiat currency is a recipe for monetary decrepitude, not to mention systemic theft, through 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 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?
Certainly the gold bugs are correct to emphasize money as necessarily being backed by a real commodity, with real value. Where they go astray, though, is in their premature dismissal of bitcoin as lacking 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.
Once this is understood, the major, salient fact about mining is the extraordinary amount of electricity consumed in the process. The great economist, Julian Simon, explained long ago that when prices of any resource are high incentives are generated for people to innovate less expressive solutions.
No doubt, in the long run, the costs of Bitcoin mining will reduce, but it seems hard to imagine how bitcoin could exist without electricity. It is the existence of an electrical system that makes Bitcoin possible. Without it, there would be no bitcoin.
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.
Consider that aurous compounds have to be excavated, smelted and molded into coins and bars to be commodity-backed money known as gold. What's so different from the process of generating, conducting and programming electricity into the mathematical calculations that produce B/bitcoin? Both are equally backed by mining a resource from the natural world. However you look at it, that is real (commodity backed) 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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