After the latest media hypes because of Bitcoin’s price race (>1.000 USD), I just need to write down what I think is completely misunderstood regarding Bitcoin – both from the media and from the Bitcoin supporters.
The main conclusion is: You can buy everything with Bitcoin, but it behaves more like a commodity (like gold) than like a currency.
You can’t buy much with Bitcoin – wrong!
Nearly every article repeats that you cannot buy anything with Bitcoin. Wrong. You actually can buy goods worth billions of dollars/euros/whatever. Why’s that? Well – you can buy currencies with Bitcoin!
From a – western – perspective the statement, one could not buy “much” with Bitcoin, subliminally suggesting, Bitcoin could not be used “in the real world”, seems to be complete nonsense. It’s makes as much sense as your complaint as an US-American or EU-citzen, you couldn’t buy much with e.g. Swedish Koronas in your US-/EU-home country or in Japan.
The important thing is you can exchange this currency and then buy physical goods. Compared to other currencies I’d say from a global perspective (per country) you have even more direct acceptance of Bitcoin as a currency than most – if not all – national currencies.
Bitcoin is a currency – wrong?
Bitcoin is being announced as a currency, both from its inventors as the media. My gut feeling tells me that’s not the fact.
The main reason is that you have absolutely no benefit in not hoarding it. Splitting the 21 millions bitcoins into more and more fractions (up to a 1/100.000.000) would nevertheless raise the value of a single Bitcoin more and more.
But it seems one needs to have any motivation spending a currency, otherwise you should not name it a currency.
In case of our nowadays fiat currencies the main two motivations are:
a) You have to spend it because you need to pay for water, communication, energy, loans etc. i.e. things you cannot avoid to pay.
b) Hoarding doesn’t make sense because your currency/asset looses on value. As we suffer from our 1-2,5% inflation since decennies, just putting your moning aside (without investing it so that you get at least a profit neutralising inflation.
But why should I spend even a fraction of a Bitcoin if it is clear it get’s more and more scarce i.e. gains in value? If I cannot clearly identify the end of the Bitcoin price race (more detailed perhaps in a later article), I would not even like spending a fraction if it could gain some thousand percent in value, right?
To me it seems clear that you can understand Bitcoin and other crypto”currencies” (except of those like Freicoin [not to be confused with Freecoin] or Peercoin which subtract some of your coin value if you hold it too long) rather as some sort of commodity, e.g. gold, silver or even oil:
Like e.g. gold, Bitcoins are “mined” and get more and more scarce. Tell me about a currency that is mined. I mean, printing or coining money might be a bit difficult, but it’s far away from mining gold (in this regard, Ripple is much more a currency).
Like e.g. gold, the average investor is rather reluctant selling gold, it is understood as a long term investment. (Not to mention the fact that quite some people are invested in commodity derivates which even have no underlying in the physical commodities or – if the underlying exists – cannot buy something with these derivates [mostly held electronically] without selling them before [despite of e.g. Krugerrands/Maple Leaf which you might use for payment if you dare using them in a dark dive somewhere in the middle of nowhere]).
Same goes with Bitcoin – only very early adopters, heavy miners or people having too much money would spend Bitcoins as it is intrinsically designed to gain in value.
To me, Bitcoin walks like a commodity (mining, scarcity), talks like a commodity (no need selling it) and quacks like a commodity (not very useable for direct payment at point of sales). I’d rather used it for long term investment, like e.g. gold and spent it only if I really needed immediate liquidity and saw no other chance getting it than using Bitcoins.
More to come perhaps later. Things that go through my mind are: would I like to be paid for work in Bitcoin? Could higher fractions of Bitcoin imply inflation? Ho much hard drive space would the local Bitcoin client need in 2020 if Bitcoin became something like a world currency causing several billion transactions a day? In which way fiat currencies are weakened by Bitcoins? And much more…
If you want to read more, show it with five Satoshi: 1M1nwrkAnRk4EdLffxk4W8bhSeDDedt5x2