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.
For the defenders of fiat currency the point is generally that in this day and age any currency not backed by a government simply can't be taken seriously as money. And, no doubt, the more sophisticated could legitimately make network-effect claims.
While having some current, practical merit, though, those arguments, I suspect are the death rattle of a dying currency. After all, experience of the last hundred years has demonstrated that having a government (and a government alone) as the backing to money 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 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?
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.
The bitcoin currency exists because of the Bitcoin technology and that technology, including both the software and the hardware, is driven by the networked work of what are called the miners. It is they who audit and secure the system, through advanced mathematical calculations. The system is effectively their math work.
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.
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.
Indeed, electricity may be the single most important commodity in our world. It's only real rival is fossil fuel and it seems likely that hundreds of years from now, when fossil fuel has become too expensive for most of its current uses - whether generated by windmills, nuclear or hydro power plants, or some means not yet invented - there will be electricity.
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.
For the defenders of fiat currency the point is generally that in this day and age any currency not backed by a government simply can't be taken seriously as money. And, no doubt, the more sophisticated could legitimately make network-effect claims.
While having some current, practical merit, though, those arguments, I suspect are the death rattle of a dying currency. After all, experience of the last hundred years has demonstrated that having a government (and a government alone) as the backing to money 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 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?
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.
The bitcoin currency exists because of the Bitcoin technology and that technology, including both the software and the hardware, is driven by the networked work of what are called the miners. It is they who audit and secure the system, through advanced mathematical calculations. The system is effectively their math work.
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.
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.
Indeed, electricity may be the single most important commodity in our world. It's only real rival is fossil fuel and it seems likely that hundreds of years from now, when fossil fuel has become too expensive for most of its current uses - whether generated by windmills, nuclear or hydro power plants, or some means not yet invented - there will be electricity.
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'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.