What is money. Why Bitcoin is, and is not.

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cremeegg

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Apologies for yet another Bitcoin thread, but I didn't want to distract the other threads with this point.

Historically there have been two types of money, money with its own intrinsic value and money with no intrinsic value.

So if a tin of beans or a packet of cigarette is used for payment, that is money with an intrinsic value.

Paper money, or fiat money has no intrinsic value.

It acquires value because it is accepted as a means of payment. In the immediate sense this is because people have confidence in the value of the paper Euro.

Behind that confidence however lies the fact that it is legal tender. Government will accept Euro in payment of tax and the bank is legally obliged to accept Euro in payment for my mortgage.

The blockchain technology behind bitcoin may give it advantages in terms of security and more dubiously in terms of anonymity. However that to my mind is not the distinguishing aspect of bitcoin. After all a visa debit is reasonably secure with minimal precaution and anonymity largely facilitates criminals. Also a €50 note is fairly anonymous.

The major difference between Bitcoin and fiat currency is that there are just 21 million bitcoin in existence. This is an interesting concept and means that inflation cannot occur, at least in the traditional, print more money way.

Is bitcoin money. Today no, it cannot be used to pay all debts. When loans are issued in bitcoin that can be repaid in bitcoin then it might be considered money.
 
is that correct that there is only 21 million bitcoins. Are they a physical coin and if so what is the material used to make them.
 
"Mined" means created electronically.

There is no physical mining.

"Mining" is a load of computers, graphics cards, running huge computations.

How close are they to reaching the ceiling on supply? I don't know.
 
About 16.7 million of the eventual 21 million have been mined. The rate of mining halves every 4 years so it'll be another 100 years before all are mined.
 
Under the assumption I guess people are still mining it for the next 100 years and energy prices won't be prohibitive...
 
Yes, but people will mine it for as long as bitcoin has value. If energy prices become prohibitive for some, they will stop mining. When some miners stop, mining becomes more profitable for the remaining miners. Therefore, Bitcoin always tends towards an equilibrium where there is an appropriate amount of mining for the value of bitcoin. So far, the value of bitcoin has generally been going up, so the amount of mining has generally been going up also.
 
fpalb said:
About 16.7 million of the eventual 21 million have been mined. The rate of mining halves every 4 years so it'll be another 100 years before all are mined.
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So it this the reason for the large increase in the value of Bitcoin in the last 12 months or so, as they become harder to mine the existing ones become more valuable and with there being a limit number in existence and they become more in more value also due to the transactions they are used for?
 
Well that's part of it for sure, in the early days you could say that the bitcoin market was being steadily flooded with a high rate of new coins being generated, now it's down to an inflation rate of less than 5% per year, and that steadily decreases. Of course the other side of that is that demand also needs to increase, if nobody wants to buy the new coins it doesn't matter how few of them are produced.

In summary, this year bitcoin has been inflating supply at a lower annual percentage than ever while at the same time gaining new users at a higher rate than ever. This could only result in a price increase.
 
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Money is a form of communication of the human species that conveys value from one human being to other human beings. It is information.

The characteristics of money - divisibility, unit of account, medium of exchange etc, are traits of modern form of money, namely currency. But before currency, there was always money.

In the Stone Age village of Orkney, there is a dwelling dated somewhere around 3,500 BC wherein the remains of a mantlepiece lies.
The mantlepiece, is an integral part of almost every human household that has held some items of value in it since. It is hard to envisage a dwelling being built today without a mantelpiece, or a shelf of some kind, or some form of structure built to display valuables , ornaments, personal artifacts, belongings and attachments.
All of this is money. A human form of communication attributing personal value and wealth and it dates back as far as the Stone Age, or more.

We use and accept the characteristics of modern money, currency, as a convenient explanation of what money is, but there are many other characteristics dating back to the dawn of human evolution that still exist today.
An example would be a border of some kind surrounding a village. It conveys a message to other humans outside the border that within the border there is something of value for the humans that is worth protecting. The border, a fence or a wall, is money. It is not easily divisible, a medium of exchange etc, so it is not currency, but it is a form of money.

The Mona Lisa is money. Again, does not fit the characteristics needed for currency, but it is money because it generates wealth from job creation, tourism, security, etc, it is something that humans make considerable effort to protect.

Anything that a human attributes value to is money. Be it emotional value, aesthetic value, associative value, utility. The price attributable to that value is derived in the market place of supply and demand for goods and services, or the auction bids in arthouses and galleries, or the experiments of science laboratories, teachings in school classrooms, the chiming of melodic music, the worship at the alter, or even on the battlefields of war with the lifeblood of soldiers.

All of that is money. Because money is everywhere that humans relate to, and everything that humans value. How it is valued, and the price attributable to that value is the autonomy of each human being.

Bitcoin is also money. It is a digital form of money, conveying information to other humans that other forms of money, namely central bank digital fiat currency, are more secure and more valuable on its network because of its decentralised, immutable, trustless structure.
The price attributable to that value is derived from the market of supply and demand of fiat and bitcoin.
 
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The philosophical foray is a tad above my pay grade. I want to change the goalposts to "what is a medium of exchange". First of all what do we mean by "exchange". We mean exchanging or trading goods or services. Barter involves trading these directly. A "medium" of exchange is on the other hand a middle man. It is something that of itself is not a good or service that you want. It is in effect an IOU, something you can exchange at a later date for a good or service that you actually want. We know all the desirable qualities - divisibility, durability etc. but the one thing that an IOU must have is trust that it will be honoured. In earlier times that trust could only come with the collateral security of the intrinsic value of the medium itself.
It is a huge advance that the medium no longer needs intrinsic value to gain that trust. So yes in principle something like bitcoin could serve as IOUs if they had secured the trust of those who hold them. With Fiat there are very strong institutional and structural supports to the trust mechanism. I see no solid foundation whatsoever for trusting bitcoin. The higher its speculative price goes the earlier its crash and burn will arrive.
 
NoRegretsCoyote said:
But then do what with it? It has no resale value!
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Well since it's a tangible asset with intrinsic value you would obviously use that intrinsic value, by burning it for heat on a particularly cold night... mmmm I can just imagine the warmth of that intrinsic value right now, lovely. This is why it's important that money have intrinsic value.
 
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