There’s been all kinds of speculation about what Bitcoin is and how it works. What about where it fits, in our insane, worldwide dynamic?
Since many of the same arguments involving Bitcoin have applied to gold as well, such as debate over whether either of them are commodities or currencies, let’s just classify them by their most basic properties.
Gold is a physical element. Bitcoin is an abstract protocol.
On one hand, gold can act as currency, but it can never be a purely abstracted item. From the other side, Bitcoin has functioned similar to a commodity, but it will never have a true physical presence.
we have the focal point anchored on both sides, gold in the physical realm and Bitcoin in the abstract. They come so close that they are nearly interchangeable.
Now, the currently assumed position of gold is at the very base of the financial world, according to John Exter. This representation can be seen in updated form with Trace Mayer‘s version of Exter’s Pyramid.
This is a powerful concept, highlighting the basis of financial development and gold’s role as the supreme intermediary between the abstract and real components of an economy. What’s curious is that gold is the closest thing to a purely independent financial instrument – it is an approximation of a monetary ideal. In other words: human utilisation of gold has placed it in a position where it straddles the two worlds of abstract monetary concepts and real, physical objects. The representation of this was put into image form by FOFOA in 2009.
Some difficulty is apparent with Exter’s Pyramid in general. Everything in the liquidity range is monetary. Real estate, physical commodities, and gold are not abstract. When buying or selling real estate, the monetary element is an agreement or contract between various parties, not the physical structure or land itself. Gold, and other precious metals, find themselves in a twilight area in which they are physical but act as abstract concepts. History has shown that this can only last so long before the dichotomy between abstract and real produces a shearing force.
Enter Bitcoin. The structure of this phenomenon is such that it is functionally similar to gold, but has no absolute corporeal presence. Its abstract, intangible nature secures it firmly in the monetary realm. This means that a shift in thinking may be in order, adjusting the arrangement of Exter’s Pyramid yet again. Considering the real estate and physical commodities section as referring to the contracts for those assets, the new form includes Bitcoin.
Now we have the focal point anchored on both sides, gold in the physical realm and Bitcoin in the abstract. They come so close that they are nearly interchangeable. Money is a language of sorts, and with translation among different languages, the ideal is to come as close as possible in meaning for both sides. Bitcoin does this from the opposite perspective that gold has offered for thousands of years.
Anything can be a money: as defined as a medium of exchange as long as it is agreed upon by enough people. Lady Gaga’s doggy doo-doo if you want.
What makes PRACTICAL money are qualities like scarcity, fungibility, anti-counterfeit measures (Bitcoins can not be counterfeited anymore than you can counterfeit pi…3.14159 etc.)
Nothing can stop an idea whose time has come. That is Bitcoin.
Money is, in essence, an information technology. It transfers and stores value information and needs certain properties to function. Some information technologies function better than others but they all need to take a physical form at some point and can never be purely abstract. For example, ink on paper, chalk on a board and sound waves in air can all be physical manifestations of information.
Bitcoin is actually physically manifest, primarily as the ones and zeros represented by electrons on chips and disks all over the world. The abstraction of money, where the concepts of value and wealth reside, happens in the minds of humans. Bitcoin is no more nor less physically manifest, or abstracted, than the electronic databases full of national monies and corporate wealth held in central banks, clearing houses and behind “green screens” the world over.
Good point. What you’re saying, essentially, is that since money is ALREADY created by (mostly) governments digitally — 1′s and 0′s — Bitcoin can do the same, but FAR better.
I think it makes more sense to speak about good or bad money. If gold meets the monetary functions better than salt, then gold is a better kind of money than salt. And if Bitcoin meets the monetary functions better than gold, then Bitcoin is a better kind of money than gold.
Some might argue, bitcoin is worthless, exactly like fiat money. This is not true, fiat money can be counterfeited, bitcoin cannot, in that respect, bitcoin, though nothing physical is far superior, in fact, given that it solves the major problem of fiat currency, it is far far far superior, since not even Govt can counterfeit Bitcoin.
Is bit coin as good as Gold, well, gold is physical, but can you eat it, no, but you can buy stuff to eat with it.
Here again though, you can argue bitcoin excels, for those of you who are aware of the current situation in the markets, you may know that banks not only fractionally reserve fiat money, they also fractionally reserve silver certificates.
IE they sell silver certificates for silver, they don’t even own, which is fraud of course.
Also, Ron Paul still hasn’t managed to get into Fort knox to audit the Gold, why ?, well it’s a fairly safe bet that the gold isn’t there.
Then there’s the Gold plated Tungsten scandal, just google it.
So even with Gold, Governments can and do cheat.
They cannot do this with Gold, so Bitcoin, can be argued very successfully I think to be better even than Gold.
If you are prepared to forgo the pleasure of holding something in your hand which you cannot actually eat anyway, bitcoin can, in many respects be said to be better even than Gold and Silver.
Even gold and silver require a degree of trust, Bitcoin gets around the need to trust, So Bitcoin, IS better even than Gold in many respects.
Interesting model. But why is real estate and stock listed in the upper part of abstract money? I would consider them more tangible and physical than e.g. paper money.
The liquidity referred to in Exter’s pyramid is of financial instruments.
When buying real estate or stocks, what is exchanged is a financial instrument – essentially a promissory note proclaiming ownership. A physical structure or company still exists whether there is a note of ownership or not.
It’s important to make the distinction between a physical item and its financial representation or value. Gold is noteworthy in that it acts as both a physically tangible item as well as its own financial “note”.
define better please.
I need an answer to my question