Loading ...Theory of Money 101 or Validity of Cryptocurrencies as Currencies In Terms of Economics
In order for something to function as money (currency) within a society, it must meet the following requirements:
- Cannot be easily counterfeited.
- Portable
- Non-perishable
- A store of value
- A unit of measure
That’s all the ones I can remember off the top of my head, I’ve probably forgotten something.
Bitcoin and all the other cryptocurrenices meet the first 3 requirements but fail to meet the last 2.
Just because cyrptocurrencies call themselves “currencies”, doesn’t mean that are. I realize
there is now a hell of a lot of emotion tied up in these assets so this is my 1st and last word on
the topic. My point is, in terms of economics, they ain’t currencies.
Edit: Here’s that Charles guy from ZH take on it, who thinks Bitcoin is money:
http://www.zerohedge.com/news/2017-12-07/what-money-yes-were-talking-about-bitcoin
My key point is that for something to function *as money* its value cannot change wildly.
In the real world, when the value of money changes wildly that is called hyperinflation, e.g.
Weimar Germany, which leads people to avoid using the currency altogether because it
no longer fulfills the last 2 requirements.
I read an article once about a tribe in the South Pacific that used very large stones as money. I guess whatever people agree on works even if it is inefficient.
I think the true litmus test of Crypto’s is when you take them to the street. Can you get fuel, food, durable goods with them on the street? Not yet. I doubt you will ever be able to buy groceries with the current versions of Crypto’s unless they get tamed by the FED? Stocks are a store of value but you’d be hard pressed to buy a car from the dealership with stocks so they aren’t money either.
Just reviewing an old economics text…
The functions of money are:
a medium of exchange
a store of value
a unit of account
Money needs to be all the following:
acceptable
durable
portable
divisible
standardized, easily recognized but not easily copied
controlled by a central authority
Agreed, bitcoin is not money.
Thanks.
Come to think of it:
1) The people who set up all the cryptocurrencies do not understand the theory of money.
2) The term itself “cryptocurrency”is deceptive because people have a degree of faith in
currencies. It seems as though cryptocurrencies are “riding on the coat tails” of “normal”
currencies in order to add credibility to what are, in effect, derivatives.
Whoa Whoa wait a minute. what is this “controlled by a central authority”? Who came up with that? No doubt that is what the central authorities want us all to believe, but in fact the best form of currency is NOT controlled by central authorities. We should all aspire to have a currency outsid eof the influence of a central authority. Of course this is why governments universally hate gold and ultimately will go after Bitcoin
Not money, and yet it has attracted a quarter of a trillion dollars. More than the GDP of Ireland. Perhaps it is the beginnings of what money will be – maybe sooner than most think.
While the number of bitcoins is limited, there can be any number of cryptocurrencies. Dozens perhaps. Hundreds even. Or thousands. How about millions? Tens of millions?
Like fiat currency, cryptos can be created at will. Gold cannot. It endures as it has for thousands of years – rare, durable, beautiful and desirable.
“Gold is money. Everything else is credit.” – quote attributed to JP Morgan while testifying before the US congress in 1912.
“there can be any number of cryptocurrencies. Dozens perhaps. Hundreds even. Or thousands.”
There are already well past a thousand of them.
Is a bitcoin divisible ?
Can you buy a book on amazon for the equivalent of $10 and get bit change ?
One Bit is $14,000 equivalent….but I understand you cannot subdivide it ?
How will that work as money ?
Bitcoin isn’t money for the reason you pointed out alone Fully.
The only way I can think to describe it is as a currency derivative, which means its just another financial asset. Same with the other crypto’s.
Mi God, Fully, I can’t believe you are still at this stage of knowledge!!
BTC is divisible in a million units.
Wake up mate !
Thanks Dangermouse…I am a Neanderthal
Well that’s the problem we have here.
Trillions and trillions in $, euros, yen, yuan, etc.
But no money.
Just currency.
Tokens if you will. Created out of nothing.
In quantities FAR in excess of what there is out there to buy — at current prices — if everyone decided to “cash out” at the same time.
That explains a few things, don’t it?