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Why bitcoins are important

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April 17, 2013 – Comments (4)

No, not because they are a good investment, or even a speculative one. It raises the important question: what exactly is money?

 

Stone Money

When I was wee lad, I read about the giant stone coins used by the Islanders of Yap. That really puzzled me. You can't put it into your pocket or the bank. Couldn't someone with a lot of time take hammer and chisel, and just make a whole bunch of them (turns out the artisans along with stone quarry disappeared long ago)? I understand that they are too big to steal, and last literally forever, but money?

 

Social Compact

Everyone on the island agreed that they were so beautiful and sufficiently scarce, to function as money (beginning to sound like gold, eh?). If a Yapian (yes, now I am making up words) went to the next island over that uses amber beads or striped seashells for money, he would be out of luck.

 

Fiat Currency

U$ currency likewise should have no intrinsic value. OK, it is special paper printed with special ink, and its creation is controlled by the Fed. Some say it is worthless because it is not backed by gold. True, gold is valued more highly by our society, but does that make it have intrinsic value where specially printed bits of paper do not?

 

Cybercurrency

The story behind the Bitcoin reminds me of the stone coins: hard to fabricate, and only a limited amount will ever exist. Yes, both have intrinsic value, since at least some people will accept it as a medium of exchange. The same applies to bits of special paper printed with special inks and precious metals.  

4 Comments – Post Your Own

#1) On April 17, 2013 at 9:03 PM, NOTvuffett (< 20) wrote:

I think ancient Sparta used large pieces of iron for money for much the same reasons.

I don't know if bitcoin is the answer, but I am sure something needs to change.

 

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#2) On April 17, 2013 at 11:58 PM, awallejr (83.79) wrote:

Sorry but I am so anti-computer finances than anything else.  I simply don't trust hackers.  If I can't "touch it" I am not interested.

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#3) On April 18, 2013 at 12:20 PM, Starfirenv (< 20) wrote:

Jerry,  are you saying Bitcoins are important because " It raises the important question: what exactly is money?"

Or "intrinsic value" i.e. Bits v gold v special paper?

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#4) On April 18, 2013 at 1:18 PM, ikkyu2 (99.31) wrote:

Money is a store of value, a medium of exchange, and a unit of account.

Trouble with bitcoins is that, though the supply is artificially constrained, that constraint bears no relation to bitcoin demand.  The result is that when people try to use bitcoins, their value fluctuates dramatically and unpredictably - like the boom and bust cycles of the latter part of the 19th century in the USA.

People have a lot to say about the economic policies of the Fed, but they are doing a pretty good job managing money supply to fit demand without putting lots of people out of work or causing massive sudden changes in dollar valuation. 

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