8th July 2017
Money is a subset of value and is therefore purely subjective. And so, cryptocurrency is money.
My comments on an article in The Australian today:
Crytocurrency is no flash in the pan, no tulip bubble. It is a mega breakthrough in peer to peer trust technology and represents one the earliest uses of this technology, which is already making its way across the existing banking system, across central banks, across governments, in hundreds of forms and shapes. Stock exchanges are soon going to work with companies to abandon existing record keeping systems and replace each stock with a contract compatible blockchain.
Like Kodak was overtaken by digital cameras, any company, bank or stock exchange, any central bank that does not actively use this technology to assure trust will face an existential threat within the next ten years. Just like journalism (including The Australian) has come under pressure from peer to peer commentators such as bloggers and Australia Post’s business has radically changed over the past two decades, this is a revolutionary technology and will change a vast swathe of the economy. The CBDs of Sydney and Melbourne, the financial hubs of Australia, will potentially get restructured as much of their business moves into peer-to-peer transactions.
Money is purely subjective. It begins with an experiment (exchange) between two people and is ratified through experience (repeated games).
Many types of things have acted as money in the past including pieces of metal, shells, cows, and cigarettes. When two people agree to use something as money, it becomes money – provided sufficient number of other people agree to use it as money. Today millions of people believe that Bitcoin is money. That makes it money.
Bitcoin started with an exchange of 10,000 bitcoins for one pizza. Its market value was thereafter ratified through an increasing number of transactions. Today, around 200,000 transactions take place per day. That’s a truly rich money market.
Note that gold has no “intrinsic value”. ALL value is purely subjective. This is the first lesson of economics. Since gold is scarce, it drives market value. Similarly for most cryptocurrencies. Just a matter of supply and demand.
I’ve come to the view that cryptocurrency is real money. The moment someone is willing to sell you a pizza or beer in exchange for Bitcoin, that hurdle is crossed.