The Internet is Changing the Very Definition of Money

[bornil267645]

In a recent blog post, Truthcoin (not an altcoin) Creator Paul Sztorc made an interesting point about how the Internet is changing the traditional definition of money. In the past, an asset needed to serve as a medium exchange, unit of account, and store of value to be useful as money; however, the Internet is quickly removing two parts of this equation. As Sztorc explained:

”In fact, because modern computing [1] allows prices to be quickly and effortlessly recalculated and redisplayed, and [2] allows e-transactions to be fast and cheap, we have many options for fast roundtrip conversions that drastically reduces money’s need to serve as a unit of account or even as a medium of exchange. This leaves only value-storage as a discriminator among money-types.”

The overall goal of the blog post was to finally dispel the contention that bitcoin cannot succeed due to its deflationary nature. Part of Sztorc’s argument rests on the idea that the Internet and bitcoin are changing the very definition of money.



Dismissing unit of account

If being a unit of account were to remain a requirement for money, then bitcoin would be in trouble. Nearly every business or individual who accepts bitcoin still prices their goods or services in terms of the local fiat currency, but this has not been an issue for the digital commodity. This is due to the fact that essentially all bitcoin wallets are able to display bitcoin balances and payment amounts denominated in popular fiat currencies. When sending a payment from one bitcoin wallet to another, many users enter the total value they wish to send priced in US dollars, euros, or some other fiat currency. Online retailers also have their prices change on a second-by-second basis in terms of bitcoin. In fact, a real-world version of this sort of price-adjusting system is also available for brick and mortar stores.

Dismissing medium of exchange

Although consumers are able to shop at many retailers with their bitcoin, most of these bitcoin-accepting outlets don’t actually hold any bitcoin. Services such as BitPay and Coinbase are used to instantly convert the bitcoin to fiat currency at the point of sale. Noted bitcoin critic Jeffrey Robinson likes to say that this means practically no businesses or individuals are actually accepting bitcoin for goods and services.

Of course, the key takeaway here is not whether or not the merchant decides to keep the bitcoin. The only part of the process that matters is a bitcoin holder is able to exchange the bitcoin for goods and services. As more assets become digitized over time, the costs associated with switching between those assets will continue to decline. In other words, consumers may be able to pay via a wide range of assets that can be converted into whatever the merchant wishes to receive.

Bitcoin as a store of value

Pztorc makes the case that bitcoin will become the preferred money because of its limited supply. This is due to the open-source nature of the technology behind bitcoin. As Pztorc points out:

”I hope it is now clear: if Bitcoin didn’t have a fixed money supply, it would be replaced by something which did. It would have happened with a single fork and a little publicity (rich BTC-owners could spread the following word “come with us on this hard fork at Date D, and your money will automatically be more valuable”). Since Satoshi knew that this would happen (and as non-equilibrium behavior doesn’t last long [by definition], and as hard forks endanger the digital-scarcity value-proposition / create double-spend opportunities), he built it the right way the first time.”

Pztorc also explains that a decreasing money supply would not work because “nothing of consequence occurs whatsoever” in such a system. If every holder of the money loses the same percentage value of the holdings on a yearly basis, then nothing has changed. Pztroc added, “If coins are destroyed randomly, risk of wealth-loss is introduced (pointlessly).”

Although bitcoin has performed well as a store of value since its creation, its short-term volatility is still an issue for many would-be adopters. Of course this volatility has become less noticeable over time. In fact, the digital commodity has proven to be a worthy contender to some fiat currencies in terms of price stability in 2015. Additionally, bitcoin also comes with other features, such as censorship resistance and a lack of counterparty risk, that are not found with digitized versions of fiat currencies.

[V for Varoufakis]

Austrian economics is nonsense. Money is a medium of exchange and nothing else.

[AtheistAKASaneBrain]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

[azguard]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

You are right. Money is just paper or card to pay/buy but bitcoin or any other crypto for that mater is something completely different. BTC is key and primary for internet sales or similar in near future for that. Key thing is small transaction fee that will be most used in future of transaction.

[vvv8]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

well put

[BillyBobZorton]

Everyone running any kind of ledger or storage of data and transactions knows blockchain technology does it better. No longer you need to store hundreds of papers, HDs and whatnot, filled with excel spreadsheets prone to modification and corruption. Now the ultimate ledger is possible: non-modifiable, non-corruptible, non-fallible and spread-worldwide across every sing computer running a node. It's pretty insane.

[edric]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Couldn't agree more. We're headed towards the future with crypto currency leading the helm.
Internet is indeed changing the 'conventional' definition of money.

[aso118]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Bitcoin may be superior to our current money, but will that be sufficient to succeed? Money evolves - we have had the gold standard, Bretton Woods system, floating exchange rate, etc. Bitcoin may be the flavour of today, but we can't be sure it will stay that way.

[azguard]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Bitcoin may be superior to our current money, but will that be sufficient to succeed? Money evolves - we have had the gold standard, Bretton Woods system, floating exchange rate, etc. Bitcoin may be the flavour of today, but we can't be sure it will stay that way.

first step would be to accept all countries btc ass payment (something like most of europe euro)

[qiwoman2]

With more and more world governments and politicians being exposed, digital currency in general might slowly overtake fiat money, not just from a technological standpoint but from a moral one as well. Also many people don't have access to bank accounts or just can't get a bank account but they do have access to the Internet, so for many it will be the only way to use money through a digital source.

[Buttknuckle]

I disagree with much of the conclusions.  I will only tackle one because I don't feel like writing an essay right now.

The only reason that bitcoin is not useful as a unit of account is because it is not widely adopted.  For example if I want to start a business making cakes I have to adjust to local or international fiat whether or not I want to.  The suppliers that provide sugar, flour, etc do not accept bitcoins for payment yet.  When they do this conclusion becomes null and void.

Edit: The second conclusion can be refuted in a similar manner.

[Amph]

I disagree with much of the conclusions.  I will only tackle one because I don't feel like writing an essay right now.

The only reason that bitcoin is not useful as a unit of account is because it is not widely adopted.  For example if I want to start a business making cakes I have to adjust to local or international fiat whether or not I want to.  The suppliers that provide sugar, flour, etc do not accept bitcoins for payment yet.  When they do this conclusion becomes null and void.

Edit: The second conclusion can be refuted in a similar manner.

this is vastly related to regulation, many merchants/suppliers are also waiting for regulation in they country, before start to move in the bitcoin jungle, they don't want to deal with possible hassle with their government in the future

they want that everything is settled in the right way before starting

[Q7]

First of all, bitcoin does not have to refer or take the fiat value as a benchmark to determine the price. Maybe for now, yes, it's happening but I foresee that one day when the infrastructure has expanded and bitcoin has reached mainstream adoption, we really don't need to refer to that anymore. I hope you take that into consideration.

[ThEmporium]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Bitcoin may be superior to our current money, but will that be sufficient to succeed? Money evolves - we have had the gold standard, Bretton Woods system, floating exchange rate, etc. Bitcoin may be the flavour of today, but we can't be sure it will stay that way.

first step would be to accept all countries btc ass payment (something like most of europe euro)

Good thought, But it need rigorous campaign around the world to introduce Bitcoin, there should be some innovative campaign to be initiated in block wise in all the regions, most of the targets to be implemented on urban areas. It needs real and effective planning, and also it is not so easy to convince all the Government sectors, it requires greater understanding for them to study about Bitcoin as well as to get trained in selling and buying Bitcoin transatctions.

[yayayo]

Austrian economics is nonsense. Money is a medium of exchange and nothing else.

Experience suggests otherwise. Austrian economics is the only sane economic school out there. Keynesians will be added to the trash heap of history once their experiment comes to an end (very soon).

The Internet enables efficient bartering through modern technology. But people will always be interested in holding an universal unit of value. Bitcoin fits in perfectly. I agree with Pztorc, that limited supply is an essential property of Bitcoin - but it's not the only one. Decentralization is of equal importance, because it ensures that holders of Bitcoin can not be expropriated.

ya.ya.yo!

[V for Varoufakis]

Austrian economics is nonsense. Money is a medium of exchange and nothing else.

Experience suggests otherwise. Austrian economics is the only sane economic school out there. Keynesians will be added to the trash heap of history once their experiment comes to an end (very soon).

The Internet enables efficient bartering through modern technology. But people will always be interested in holding an universal unit of value. Bitcoin fits in perfectly. I agree with Pztorc, that limited supply is an essential property of Bitcoin - but it's not the only one. Decentralization is of equal importance, because it ensures that holders of Bitcoin can not be expropriated.

ya.ya.yo!

Keynes was the greatest economist of all time.

[aso118]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Bitcoin may be superior to our current money, but will that be sufficient to succeed? Money evolves - we have had the gold standard, Bretton Woods system, floating exchange rate, etc. Bitcoin may be the flavour of today, but we can't be sure it will stay that way.

first step would be to accept all countries btc ass payment (something like most of europe euro)

That is not going to happen anytime soon. Countries will not let this happen unless they are forced to.
Even when they see the virtues of the blockchain, they are going to try to set up their own e-currency.

[azguard]

Our current money was never designed with the internet in mind. We are dealing with deprecated forms of money in the modern internet era, this is why Bitcoin is the objective superior way to move and store value. Those that get it now, will reap the benefits later, this is pure physics.

Bitcoin may be superior to our current money, but will that be sufficient to succeed? Money evolves - we have had the gold standard, Bretton Woods system, floating exchange rate, etc. Bitcoin may be the flavour of today, but we can't be sure it will stay that way.

first step would be to accept all countries btc ass payment (something like most of europe euro)

That is not going to happen anytime soon. Countries will not let this happen unless they are forced to.
Even when they see the virtues of the blockchain, they are going to try to set up their own e-currency.

I know but still i have some fait in it. If we dont have something to hope for what it is good for.

[boopy265420]

The mankind is going through evolution from the very start so does the money.At start was barter system then gold and silver were used long time as currency.Later paper money took the place of those two metals and was doing great job.Now this is era of high speeding internet and future is for sure belonging to digital currencies.Digital currencies will replace the current paper money successfully as these are fast,easy and secure to transfer and transaction are transparent on blockchain.

[victoryboy]

We will see even much more in coming years.Internet already has changed many old concepts.Financial system will not escape from its effects too.Digital era needs digital money in future.