Privatbank bitcoin exchange rate
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The most significant innovation in Bitcoin is not blockchain, nor the fact that it is a non-state-backed electronic currency. Intelligent money is one which self-regulates. From an economic standpoint, the obvious improvement in intelligence would be to design a currency which expands and contracts in line with demand.
In extremis, I imagine we will have a currency which is fully intelligent, gathers data and evolves its own rules of distribution and growth. Those are some of the insights into the future of money which Bitcoin has revealed. What about Bitcoin itself? I think Bitcoin is a money. You can pay for things with it and it has a significantly large number of users.
As a significant contemporary currency, Bitcoin is also unique because it is designed to have a finite supply. It is also unusual because it has been issued by the non-state sector and the revenue generated by the issuance has been dispersed across many individuals and entities under a decentralised system. There are two immediate observations: What does Bitcoin reveal about money?
Confusion arises because it is extremely difficult to establish a network of users. Typically, this requires either some form of backing or some kind of force — for example, the fiat power of a state. But once the network is established, money no longer needs backing, or government decree. Chartalism, the idea that money is only accepted because you are required to use it to pay taxes, conflates this critical distinction.
One way to establish a network of users of a currency issued by a state is to require taxes be paid with the currency — but once the network is established, tax payment is the same as any other transaction. In a state, such as Hong Kong, where the government raises revenue mainly through land sales, and taxation is an afterthought, currency still has value. Dan provides a coherent explanation of how the network was established, and also a rigorous way to value Bitcoin.
Bitcoin could establish a network of users because it fulfils a clear economic function: Now this does not fully explain why Bitcoin succeeded in establishing a network — we need to understand why those in the illegal drugs trade decided to accept it. Its geeky cleverness may have been its original edge — and despite its seedy origins, it may genuinely be the cleverest money ever. Or tell people about it. If banks started to lend bitcoin and take bitcoin deposits, we would have a bitcoin banking system with decentralised electronic base money.
Those deposits would have very different properties to Bitcoin itself — not least of which is that banks could default on them. Bitcoin illustrates very clearly why helicopter drops of money are the definition of monetary policy, and not fiscal policy. Reserves do not have to be distributed through banks — that is a contingent institutional feature of our current monetary arrangements. We can also learn about central bank accounting.
Base money is clearly not a liability. And not paying interest on reserves does not cause immediate Bitcoin hyperinflation!
In most circumstances, how much money is issued matters. Bitcoin is designed to have a finite supply. Usually when we think of money we think of it in the context of a national or regional economy. We typically value currencies relative to domestic price levels. In consideration of exchange rate valuations we look at real exchange rates which adjust the nominal exchange rate for relative inflation trends across economies.
The Big Mac index derived by The Economist is an attempt to do this in reverse — by comparing the exchange rate to the relative prices of a homogeneous product in different economies. What can we do with Bitcoin? It may well be the case that even if illegal trade provided the initial network effect, the subsequent use of Bitcoin is independent. Some will argue not having state backing is an advantage, others a disadvantage. I have no way of assessing our ability to control counterfeit Bitcoin — which must be one of its biggest risks.
The next biggest challenge to Bitcoin, as a money, relates to how it established itself as a network. Why would I ever want to use Bitcoin to buy and sell goods and services rather than an alternative currency? Price volatility is a cost. This problem is revealed by its limited role as of unit of account.
Many merchants may accept Bitcoin as payment — including high profile tech companies — but they price everything in dollars and convert immediately. I have no idea what a fair value for it is — there is far too much uncertainty. Assets which generate cash flows are the easiest to value, or at least derive expected returns. That is why currencies are so difficult to assess. Sterling can trade at two dollars which it did just over ten years ago , or at one dollar — without any material shift in relative prices.
Bitcoin is a currency, and we have no well-defined Bitcoin-specific economy. It is as if international dollars started to trade independently — how would we value them? What I would say is that Bitcoin is extremely important.
It reveals an alternative future for money in general. As a specific money, it has unique properties. Its persistence and relevance may surprise. You are currently viewing as a: We have placed cookies on your device to help improve your web experience.
Bitcoin as money What does Bitcoin reveal about money? Valuing Bitcoin In most circumstances, how much money is issued matters. Need help planning your investment? Email us query prudential.