Matt HealeyWednesday,20 November 2013

The Snap:

Apparently there has been a lot of movement in the exchange rate for Bitcoin. I am not really sure why it has moved as far as it has, but it could be due to increasing acceptance of the currency to buy hard goods. After all, the number of Subways (the sandwich shop) that accept Bitcoin doubled yesterday when a location in the NY/NJ area decided to accept Bitcoin.

The Download:

I am not sure I will ever use Bitcoin because I am not sure that it will ever be universally accepted. But I do think that it merits some consideration. In order to do this it is important to look at role of money in general. Money generally serves 1 function. It is a way to store value over time. Granted that time can be very short — as in you get paid on Friday morning and the money is all gone by Saturday morning. In this case it was likely a good Friday night. The fact that you can use money to store value over time also means that money becomes a means of exchange. If there is no way to store value, then everything has to be paid for by bartering. This system is highly inefficient.

So why is money worth anything? Before the collapse of the Bretton Woods agreement in 1972, money was worth something because it could directly exchanged for gold. But now you can not directly exchange paper money for gold. You can buy gold with your paper money, but a direct exchange is not possible. Which leads us to the general point of current money – money is worth something because we all agree it is worth something. If we stop agreeing, then it stops being worth something. Which leads to why I am intrigued by Bitcoin. It could become worth something, but only if everyone agrees it is worth something. Right now that is questionable. Granted there are problems with current system. As @HindlesKitchen tweeted:


Well @HindlesKitchen, I want the currency that I can take to a gas station and use to get gas, as I did yesterday. In preparation for this post, I walked into the gas station, handed them a small green piece of paper with the number 100 displayed prominently on all four corners and left with around 16 gallons of gas and some other small green pieces of paper with various numbers displayed on the corners. Granted there is a lot of U.S. government debt, but as long as I can keep doing what I need to with these small green pieces of paper, then the current system is functioning fine. Still, Bitcoin could gain traction, and as soon as it does, I will start using it. Until that time, I will stick with U.S. dollars.

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Hat Tips:

CNBC, IMF, Image Credit: Flickr

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