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Friday, 30 May 2014

Bitcoin can never be a monetary item

Bitcoin is a decentralized digital peer-to-peer payment protocol with a spontaneously monetized unit of account. The Bitcoin System's unit of account, bitcoin, is used as a digital medium of exchange on the Bitcoin payment platform. The monetized bitcoin is a very unstable store of value.

bitcoin is the unit of account of the Bitcoin block chain system. bitcoin will never be used as the official monetary unit of account or monetary unit of measure in any accounting model.

Spontaneous monetization of bitcoin

Bitcoin is an open decentralized system. Anyone can participate. Monetization also had to be spontaneous.

On 22 May, 2010 "laszlo" spontaneously monetized bitcoin at $0.0025 for 1BTC. He paid 10 000 BTC for 2 pizzas costing about $25.

Money is supposed to be perfectly stable in real value. Money never was or is or ever will be perfectly stable in real value on a sustainable basis over time. A Consumer Price Index is thus required to calculate a unit of constant purchasing power. Implementing Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) in terms of the Daily CPI (during low and high inflation and deflation) and the USD parallel rate during hyperinflation, including daily inflation-indexing of the entire money supply stabilizes the real value of the money supply as well as the real value of all constant real value non-monetary items in an economy. 

The fact that bitcoin was spontaneously monetized and thereafter evolved to increase in real value - it has a limit of 22 million bitcoins in 100 years' time - means bitcoin was never intended to have a perfectly stable real value over time or even a relatively stable real value that can be assumed to be perfectly stable like in the case of all fiat currencies (all national monetary units). 
Bitcoin can thus never be real money. Bitcoin can never be a monetary item. It is not money or a monetary item. It is a variable real value non-monetary item similar to rare stamps. 

Monetary items constitute the money supply. Bitcoins will never be part of any country's money supply. Bitcoin can thus also never be subject to monetary inflation and monetary deflation because it is not assumed to be perfectly stable in real value. 

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.