Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Does Bitcoin Have Value; Is It Money?

Currencies / Bitcoin Dec 29, 2019 - 06:57 PM GMT

By: Kelsey_Williams

Currencies

Writing about Bitcoin is a challenge for several reasons. It has a short history (ten years), it is highly complex, and there is a certain vagueness to the logic behind the concept. When reading about it, or listening to explanations, I wonder whether or not I understand it adequately. I also wonder how many others do.

Much has already been written and discussed, such that further commentary might be superfluous. But some additional perspective likely won’t hurt. So, for those who asked…

What is it? Bitcoin, simply stated, is a form of digital currency.  That is how most people describe it when pressed for an acceptable answer. That does not make Bitcoin unique, though, since most of our money supply today is in the form of digital currency.


Computer technology has changed the way we bank, shop, pay bills, and send money. We also get paid electronically and access our earnings via smart phones and computers. So what is it that makes Bitcoin different?

CRYPTOCURRENCIES

Bitcoin is a cryptocurrency.  “A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.”   …Wikipedia

Then what makes Bitcoin (or any other cryptocurrency) a currency? Let’s define currency…

Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.”  …Investopedia

Accordingly, Bitcoin is not yet a currency because it is not a “generally accepted form of money” but, as it increases in use as a ”medium of exchange for goods and services”, and becomes more generally accepted as a form of money, then its credence as a currency is enhanced, whether or not it is issued by a government.

Good; but, there should be a useful advantage to Bitcoin and cryptocurrencies. It should be something that gives them additional value over other forms of digital currency.

A possible advantage is found in the definition above: “Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems”.

The advent of digital technology allows us to communicate and transact business in real time – without being face to face.

Doing so, however, requires verification. Transactions that occur over the internet require a third party for verification. A middle-man, if you will; which generally means a bank.

If I use a debit card or credit card, any transaction is authorized instantaneously by the institution or bank. The bank is verifying that funds are available in the form of either cash or credit, whichever is applicable to the particular transaction. A seller, or vendor, is guaranteed payment and the purchaser has a confirmed record of payment to the other party/seller.

Bitcoin and other cryptocurrencies offer the potential to avoid the third party. Hence, transactions using Bitcoin or other cryptocurrencies are ‘private’ and still instantaneous.

But how does a seller know that a purchaser has Bitcoin to spend and that payment can be received in ‘good form’?

The answer is that every single Bitcoin transaction is recorded within  a decentralized tracking system. We might say there is no middleman; rather,  a universal, exterior history.

Proponents of Bitcoin claim that the elimination of a middleman/bank and the resulting privacy are huge benefits. In addition, it is possible that transaction fees could be limited or non-existent.

The privacy is attractive for tax and regulatory reasons, yes. Those items are obstacles to free trade. But it is probably not realistic to think that the system will be allowed to function unimpeded on its own for long, if it is successful.

It is naive and short-sighted to think that those who claim to have regulatory authority would sit idly by without making a concerted attempt to intercede.

IS BITCOIN MONEY?

As an ‘alternative’ medium of exchange, Bitcoin has been described and characterized as a form of money. But is it?

Money has three distinct characteristics: medium of exchange, measure of value, store of value. 

Bitcoin and other cryptocurrencies are, to a limited extent, mediums of exchange. But are they a measure of value?  I don’t think so.

Money is used to value other items – by price. For example, under our current monetary system, we place a relative value on various goods and services by attaching a price to it.

All of the goods and services we buy and sell including our own labor, education, and our very lives for that matter, have value. The value of various items is determined and a price is affixed using a commonly accepted medium of exchange. For purposes of this discussion, that medium of exchange is the US dollar.

However, the perceived value is subjective. An item’s value can vary from one individual to another and with the passage of time.

Lets say a furniture store has a sofa for sale at $995.00. After six months, the sofa is still in the store and still offered at $995.00. So the manager marks it dow to $749.00 and it sells the next day.

Did the sofa lose value over six months? No. And people’s perception of its value likely didn’t change, either. It was probably overpriced to begin with. Which means that its value was overstated originally.

The price of something can be an indication of its value but only in the context that there is a measure of value (in this case, dollars) that is accepted independently and universally.

For Bitcoin to be considered money, it would have to function as a measure of value: How many Bitcoins is the sofa worth?

We don’t know because there is no reasonably reliable application of value for Bitcoin. In other words, how much is Bitcoin worth? Who knows? At least with US dollars – for now, anyway – they serve as a medium of exchange and a measure of value.

Obviously, there is no possibility for Bitcoin to be termed a store of value. This is true not just because it is impossible to  determine its value. It is also true because there is no history of sufficient length to provide evidence of store of value. Sufficient evidence would require centuries.

So, if Bitcoin isn’t money, what is it? And does it have value?

How do you determine a value for nothing? A sofa has value. Companies that produce and provide goods and services have value. Real money (i.e. gold) has value.  The much-maligned US dollar, a paper substitute for real money, has  a commonly accepted, implied value.

Bitcoin is a digital creation which has no value in and of itself. As such, it can never be used as a measure of value for anything else. Think of it this way: How many Bitcoins is your house worth? How many Bitcoins will your next car cost? If you can answer those questions without any calculations, you will know that Bitcoin has become “a generally accepted form of money”.

BITCOIN IS A PROCESS FOR THE TRANSFER OF MONEY

Bitcoin is a process for the transfer of money. But the money being transferred at each transaction is US dollars, the currently accepted medium of exchange.

When a dealer accepts Bitcoin in trade, they are really accepting enough Bitcoin to equal the amount of US dollars agreed upon by both parties. There is a fixed price for the dress you want to buy online, but it is priced in US dollars, not Bitcoin.

The transfer process has value, but not the Bitcoin itself. And, if that is the case, what makes one cryptocurrency’s value different from any other?

Think of it this way: How much of a difference in value to you is there between your bank-issued debit card and a debit card issued by any of the other competing banks?

If you said “little or none”  you are correct.  So why is Bitcoin’s price so radically different from Litecoin? or Zcash? It seems sort of like different denominations and colors of Monopoly Money.

Bitcoin and other similar digital monies are referred to as cryptocurrencies. However, they are not currencies because they are not “generally accepted form(s) of money”.

In addition, Bitcoin and other cryptocurrencies are not money because they have no value. Thus, they cannot be a measure of value or a medium of exchange.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2019 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in