It has become conventional today to compare bitcoin with electronic gold, because by arrangement this currency manages its rarity, and its blockchain remains principally adapted to sizable transfers more than to many payments of diminutive sums. The key principle emphasized in these comparisons is that if something is supposed to be compared with gold could also be used as a store of value.
Money is a commodity mostly wanted because its role as an intermediary in trade. There are several criteria that traditional currencies and tradable goods fulfill and they are all found while comparing them to bitcoin. Regardless the extent to which bitcoin meet these criteria, it is significant to highlight that it has all of the necessary elements of an item that changes value according to the level of the supply and demand shown on the market.
First of all, it comprises a store of value, which implies certain purchasing power over time, then it is sustainable, it must be scarce, i.e. with limited offer, its ownership has to be secured, it must be easily transferable and exchangeable and it has to be must be easily divisible. Through the history many societies have tried numerous commodities, such as gold at the first place because of the initiation of national currencies and that is still the only big difference between gold and “electronic gold” in this sense.
Merely by its strength blockchain is also modified to record nonphysical proofs of existence, etched for timelessness. Any symbol and any code correspond with a factual or essential object that can find its place in it, certifying the date given to it by this global network. For instance, it may certify credentials, communication, contracts, and proofs of claims, identification or assets to be insured. Utilization is immeasurable to cognition necessitous environments of credible property. The blockchain allows total belongings between programs or individuals that do not know each other.
The key principle was that a structural currency must constitute a store of value. Its purchasing power must remain certain over time and therefore it has to be long-lasting. This is the reason why the monetary content of for example consumer goods has failed, because it is perishable and cannot make up reserves of value. The physical properties of gold make them long-lasting and that is why the market valorizes these objects over time. In this regard bitcoin is durable, because its source code is not destructible and its computer properties do not take down its purchasing power.
When it comes to the amount in which it is offered on the market, traditional currencies have a value that depends on their rarity, i.e. the amount of money printed by a particular central bank. Money supply must consequently be limited to preserve the value of medium of exchange in order to protect its purchasing power over time.
It is surely challenging for an individual to falsify the fiat currency, though central banks have an unlimited power of monetary creation, limited by the economic policies of governments that create them. This means that they have the legal monopoly of imitating, which lawfully destructs the scarceness necessary to keep the value of goods over time and that is the reason why traditional money has inflationary nature and continually loses their value.
This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018