Is bitcoin ever going to become money? That’s certainly on the mind of bitcoin enthusiasts and backers of the blockchain record-keeping technology that potentially makes it possible. It’s also on the minds of the economists at central banks, who wonder how the new currency will affect their ability to manage inflation and economic growth. The answer to the question depends on the answer to a much deeper question: What is money, anyway?
To me the answer has always seemed simple: Money is what you exchange for goods and services. But plenty of people don’t seem to be on the same page. You see many declare stubbornly that “gold is money,” even though they can’t go into McDonald’s and use their gold collectible coins to buy a Big Mac. What these gold bugs mean is that in their view gold will hold its value during the long term. They predict that in 100 years they will be able to trade their gold collectible coins for whatever the dominant currency is then, and use that currency to buy about as many Big Macs as they could today if they sold their collectible coins for dollars.
But being a good long-term store of value isn’t really a desirable characteristic in a currency. The reason this is true comes from a very deep fact in finance: the trade-off between risk and expected return. In general, if you want something whose value is stable in the short term, you will need to accept that it won’t go up much–or may even go down–in the long term. If you want to build your wealth, you will have to accept some short-term fluctuations.
Short-term fluctuations are bad, bad, bad for money. You don’t want your cash to
Originally appeared at: http://www.arkansasonline.com/news/2015/jun/28/volatile-bitcoin-still-isn-t-money-2015/
Volatile Bitcoin still isn’t money is a story from: BitcoinWarrior.net