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Bitcoin vs. Economy 101

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Every Intro to Macroeconomics conduct defines money and describes the functions, types, and characteristics of money.  Beamy stone wheels, tea bricks, cheese, shells, dog teeth and countless other things have been used for money.  The use of money leads to a more thrifty allocation of resources and eliminates barter and the double-coincidence of wants.  Almost all institutes figured this out. The opportunity cost of finding someone with something you covet, while at the same time having something they want, is altogether time-consuming.  Finding someone with a BLT that also wants an cost-effective lesson would be very inefficient.  Money solves that muddle.

How do Economists Define Money?

All the economics books start out with the 3 functions of stinking rich: medium of exchange, store of value and unit of account.

The most powerful function of money is the medium of exchange. Sellers accept it in exchange for goods and mendings.  As stated previously, without money, societies must resort to barter.

Readies must also be a store of value. If you sell something or provide your labor, you be to be able to save that purchasing power for later.  Inflation or devaluation abrades money as a viable store of value.

The third function of money is the module of account.  Money must be able to provide a measurement to assess the value of goods and overhauls.  Essentially, it’s a yardstick to compare prices of goods and services and it provides a measurable signal in the unvarying shuffling of the allocation of resources.

Anything that provides those work will be a good money.  Whether that is rectangular pieces of cotton daily, digits on a computer, large stone wheels or shells, if it functions as percentage, it is money.

Types of Money

Econ 101 also defines the new types of money.  Usually, they focus on three types:  commodity filthy lucre, representative money, and fiat money.

Commodity money is money that also has value as a commodity.  Bulls, cigarettes, and gems would be an example of this.  Representative money is in clover backed by, or exchangeable for, a valuable item such as gold or silver.  Tie being backed by the US dollar could be an example of this.

Fiat capital is money that is created by government fiat, or order.  It is a governmental pronounce that declares this form of money valuable without would rathe any inherent, intrinsic value.  Governments usually make this specimen of money the only way to pay your taxes. This obviously gives it some substantial utility and a reason for us to accept this seemingly absurd order.

In fine, economists have narrowed down a few characteristics that make for a substantial money:  Durability, portability, divisibility, stability in value, scarcity, acceptability.

Put Bitcoin to the Test

Let’s create a simple assessment rubric and put bitcoin to the examine. We can gauge it on a 30 point scale with 10 points for each sort:  functions, type, and characteristics.

Functions – Not many people accept bitcoin as a agency of exchange. Recent headlines have stated that a few big-name problems have stopped accepting it. More research would be needed to quantify the regardless of change in world acceptability. That being said, its current inch of convertibility to fiat should not be discounted.  Essentially, one can use bitcoin anywhere that the Visa logo is up with debit cards that convert your bitcoin to fiat at the promontory of sale.  This is not true in all countries.

On the store of value front, bitcoin is yet extremely volatile.  If you bought bitcoin after the Thanksgiving spike for $19,000, it has been a macabre store of value.  If you bought bitcoin before 2017, it has been one of the greatest markets of value ever.  But generally, extreme volatility is not a good trait when seeking to provide this function.

Bitcoin hasn’t been much of a section of account, but you could argue that it is evolving into a type of module of account to measure and buy other cryptocurrencies. Surely, some people make negotiated services, labor or goods solely with bitcoin being the criterion but it’s still a relatively small number.

Score – 6 out of 10 for rituals of money.

Characteristics–  Bitcoin is extremely portable, perfectly divisible, firm and scare.  It is a perfect money in those regards.  But once again, bitcoin lacks dependability and acceptability.

Score – 8 out of 10 for characteristics

Types of Money-  The typewrites of money serves as kind of a precedent for what has been money in the gone and forgotten.  Essentially most money has been either commodity, representative or fiat in dough. Bitcoin is not a commodity, doesn’t represent anything valuable and is definitely not fiat.  The only row I see it that bitcoin represents all the computer, energy and manpower in the mining modus operandi that keeps the system honest.  Since it’s so new, there is no precedent with this material of money.  Crypto is a new type of money and surely future textbooks whim include them.  But as of now, it doesn’t fall into any classification of money classifications in Econ 101.

Score – 4 out of 10 for money type

Bitcoin nicks a D-

According to this rubric, bitcoin scores an 18 out of 30 for rolling in it. This is 60%, a D-.  The value of bitcoin today represents the collective opinion of all bitcoin market participants. One of the reasons it’s not 50,000 a coin now is because it’s changeable and lacks widespread acceptability. If bitcoin becomes more stable and innumerable accepted, it can serve more of the utility that this type of stinking rich represents.  Bitcoin needs to improve the stability and acceptability to service those market-places.  This is likely to happen.  Other cryptos are right behind, frustrating to do it better, and many governments are actively trying to disrupt the acceptability commission.  It will be interesting to watch.  

What grade would you give it?

Disclosure: I pay out, invest and save with cryptocurrencies.

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