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    Author Topic: ECB paper on Bitcoin and virtual currencies  (Read 16923 times)
    Roger_Murdock
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    November 05, 2012, 02:42:15 PM
    Last edit: November 05, 2012, 02:57:25 PM by Roger_Murdock
     #161

    I've never understood the notion of bitcoin as a commodity.

    Money, in the abstract sense, is value that you have given to society, that you have not yet redeemed.  It is a token of a half-completed trade.  Bitcoin is an excellent implementation of that abstract idea.
    I think that's right. Money is information, but in order to serve that function, it needs to be reliably scarce. Using a commodity for money was simply one way of making sure that requirement was met. With fiat, you have to trust that the issuer will not simply decide to debase the currency. They can do so because the value of the new money they create far exceeds its marginal cost of production. But that's also why Bitcoin is more like commodity money than fiat. Its value, assuming competing suppliers, is equal to its marginal cost of production, and that's why some have called it "quasi-commodity money."

    Edit: One of the reasons that Bitcoin is better than commodity money is because it is pure information. The rate of new coin creation is fixed ahead of time and known to all participants. And new coin creation is also a temporary phenomenon. If you are using gold as money, and a huge new discovery of gold is made or there's a massive breakthrough in mining technology, that's not actually a good thing from a systemic perspective. It's great that more gold is available for industrial uses, but from a monetary perspective, the information conveyed by money has become less reliable.
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