Unit of account bitcoin chart
Some recent mumblings on CoinDesk on the idea of a cryptocurrency whose value is stabilized with a built-in prescription that manages its supply provoked me unit of account bitcoin chart write this article on why this is a vain dream. There is a common fallacy which says that price stability is required in order for a currency to function as a form of money. The way people use terms like store of value and unit of account presumes unit of account bitcoin chart.
However, I will show that in an unstable world, a stable currency is counterproductive and furthermore that an unstable currency serves the traditional purposes of money, to the extent that they can be meaningfully defined in unstable conditions. First of unit of account bitcoin chart, it is impossible, long-term, to expect an algorithm to maintain the stability of a currency. For someone who gains by anticipating such an algorithm is not producing something valuable that other people want to buy, so he must be gaining off of other investors, who are losing.
That means other people holding the currency, which means that the currency cannot possibly be stable—either it is dropping in price, or the supply is rapidly declining. The outcome would depend on the details of the prescription. This can continue until the market cap of the currency goes to zero. In order to succeed at manipulating the price to keep it stable, the prescription must never allow traders to adapt to it.
It must continually be smarter than everyone else. This is not something anyone can reliably guarantee, especially a Bitcoin startup if history is any guide.
It is also why the federal reserve is traditionally so secretive, why the chairman tries to talk without saying anything, and why his or her every move is so deeply scrutinized. Stability is about as real as the fountain of youth, love potions, or perpetual motion machines. It is not to be found anywhere in the universe but for some reason people act as if such a thing could somehow exist.
Prices reflect the availabilities of things that we actually can have, so maybe we should all stop searching for chimera of stability and accept that if the world is unstable, than prices ought to be unstable too. Otherwise prices could not serve the function of enabling people to coordinate the allocation of scarce resources.
Right now the world is deciding whether it wants Bitcoin to be its money. Will Bitcoin take over or will it drop to nothing? There would be no dedicated community of enthusiasts because no one would have any particular reason to want it to be adopted other than the company issuing it. And that company could not offer any value with its stable currency because it cannot unilaterally create liquidity, which is the fundamental thing that makes a currency useful.
What actually makes for a good store of value? The problem with unit of account bitcoin chart term is that it is a terrible metaphor. When we store a physical object, typically we shut it away from other people in another object, like unit of account bitcoin chart box or something. Value is not a physically real thing, like the box. It is an expectation about how much people want something.
The whole idea of storing value is absurd. This does not mean that anything can be a good store of value. Everyone could treat, say, plastic poker chips as a good store of value and they would only behave like one until people realized that they were unit of account bitcoin chart to manufacture. But suppose there were another metal which had similar properties to gold: However, the state of our science was such that it was only just being identified by chemists.
This new metal would certainly not have a stable value initially upon its discovery because it would take time for the world to learn about it, but it would be perfectly rational for the chemists who did understand it unit of account bitcoin chart buy up as much as they could until the rest of the world had got wind of it.
Stability occurs to the extent that it can happen at all once everyone has not only learned of the favorable properties of the good but has learned that everyone else also knows of those properties.
Furthermore, everyone could think this way at the same time, and the market therefore still behave fearfully. This is unit of account bitcoin chart people must be convinced that everyone else believes in Bitcoin too. Hence there is fear and volatility. Nonetheless, Bitcoin cannot be counterfeited and its supply is not likely to change, no matter what else happens in the future. This is the best that can be done, as far as engineering goes, to design something to be a store of value. The rest is up to everyone else, not the engineer.
Now, what about Bitcoin as a unit of account? Unlike store of unit of account bitcoin chartthis is actually a really good term, but unfortunately people do not take it literally.
When people say unit of accountthey seem to want something that will reliably measure wealth somehow, or that things can be priced in without having to be constantly updated.
But these are just other ways of chasing the siren song of stability. Really, one can only compare different alternatives which would have taken place over the same time. It is very simple: Thus, acquiring a liquid good serves as a reasonable end point to any venture. Whereas if we were on a barter system with no highly liquid goods around, then one would have to think much further ahead in order to assess the success of a venture.
Thus, thinking of profits unit of account bitcoin chart losses in terms gaining or losing a liquid good is essential to being able to divide the entire future into manageable tasks—as long as one is gaining that liquid good, one is doing things correctly. Of course, when things are changing so much that the money good itself might shift, then one has to pick which medium of account to use.
In that case everyone should be trying to get as much as possible of it right now, with the expectation of it being very liquid in the future. Finally, unit of account bitcoin chart about Bitcoin as a medium of exchange? Of course Bitcoin is a good medium of exchange.
My problem with this function of money is the way unit of account bitcoin chart treat it in relation to the others. People sometimes think that medium of exchange should be the primary function of money, as opposed to using it unit of account bitcoin chart a store of value.
However, it is impossible for a good to function as a medium of exchange unless there is already demand for it as a store of value. And he has to want to store them, even if for only a short time because of everyone tried to spend their bitcoins immediately, that would drive the price down to zero.
Furthermore, the more that people want to store bitcoins, and the higher goes its value, the more liquid bitcoins consequently become and the more trade they enable. Thus, Bitcoin is the kind of money that works in an unstable world, which unit of account bitcoin chart the only kind that we know of, and it is a good store of value, unit of account, and medium of exchange, to the extent that these terms make sense amid great uncertainty. Some works may be subject to other licenses. Toggle navigation Satoshi Nakamoto Institute.
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