Tags: Bitcoin | gold | silver | currency

Bitcoins Can Be a Viable Medium of Exchange

Friday, 05 Apr 2013 07:46 AM

By Barry Elias

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The Bitcoin was “coined” in 2009 as a decentralized, crypto-currency based on the encryption of digital signatures that can be used to purchase goods and services.

Like gold and silver, Bitcoins can be a viable medium of exchange, since their value is dependent on real investment of human capital, labor and resources to produce peer-to-peer encryption algorithms to form the currency.

The market value of the Bitcoin is determined by the global aggregate demand and supply, a decentralized platform that is less susceptible to centralized control, such as sovereign entities or powerful private interests.

The supply of Bitcoins is nearly 11 million — half the total projected fixed supply of 22 million. In the past two months, the price of Bitcoin has risen nearly sevenfold, from $20 to $135, for a total market value of approximately $1.5 billion, while the market value of gold and silver reserves are approximately $1.5 trillion and $500 billion, respectively. Including that in circulation, the total market value of gold approaches $9 trillion.

Currently, the world monetary base is nearly $27 trillion. This includes currency in circulation and excess, lendable bank reserves. This value is based on a sovereign, centralized control of fiat currencies that are not backed by real assets.

In the coming decades, it is possible that we will see a rise in production-based commodities that partially back the monetary aggregates used to exchange goods and services. An equilibrium will result when the market value of these real assets that function as a medium of exchange are roughly equivalent to the market value of the world money stock.

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