Money from nothing
Chronic deflation may keep Bitcoin from displacing its flat
rivals
BITCOIN, to its most
ardent fans, is more than useful way to pay for drugs. It is also a
technological marvel that could disrupt much of the consumer-finance industry.
But is it money ? The Bitcoin
economy keeps growing, despite the periodic disappearance of large
quantities of currency in hacker heists. The total value of Bitcoins in circulation has risen to
$7.9 billion, from just $490m a year ago, while daily transaction volume
is up by almost 60%. If Bitcoin aspires to match dollars and euros for money-ness,
it will need to be more than
just a Mastercard for nerds3.
Economists reckon money is anything that serves three main
functions4.
It must be a “medium of exchange”, which can reliably be swapped for goods and
services. It should be a
stable store of value5,
enabling users to tuck some away and come back later to find its purchasing
power more or less intact. And it should function as a unit of account : a
statictical yardstick against which value in an economy is measured. The American dollar meets all three
conditions. Bitcoin has some way to go.
Bitcoin does best as a medium of exchange, thanks to its
clever technical design. Users can quickly move holdings around anywhere in the
world. Rather than relying on
central clearing-houses, verification of transactions is done by
“miners”, who are compensated for their work with newly created Bitcoin. The
new money they create adds imperceptibly to Bitcoin inflation, spreading the
cost of their work over all users. This elegant system makes Bitcoin cheap to use. Because banks are
not needed to confirm legitimate purchases, transaction fees are low. Bitcoin’s
near-anonymity has also helped drive acceptance among those who would prefer to
keep their transactions secret, whether drug-dealers or money-launderers. The
combination of functionality and user interest means that people are finding it
easier to swap coins for both goods and services and for other currencies. This rising credibility as a medium
of exchange supports Bitcoin values.
Yet Bitcoin is not exactly a stable store of value. It is technically
equipped to do the job: coinssaved in a encrypted wallet on a hard drive can be
retrieved for later use in purchases. But the currency’s wrote is prone to wild
gyrations. Massive Bitcoin heists, like the recent plunder og roughly 6% of
outstanding Bitcoin from the Mt Gox exchange, reduce confidence in the
currency. Bitcoin prices dropped by 30% against the dollar in February due in
part to the Mt Gox news. In more bullish
moments, interest has attracted
speculator, sending values soaring- at least temporarily. Cameron and
Tyler Winklevoss, twin brothers known mainly for their early quasi-interest in
Facebook, recently announced plans to launch a Bitcoin tracking fund, to make
it easier for amateur investors to take a punt on the technology.
Volatile values could prevent Bitcoin from ever
establishing it self as a medium of account. Even the few retailers who
accept Bitcoin use other currencies as their principal accounting unit. Prices are given in a prominent currency (US
dollars, for instance) and the Bitcoin price fluctuates automatically
with changes in the crypto money’s exchanges rate. Similarly, most Bitcoin
owners work in jobs with wages paid in traditional currencies. So long as
Bitcoin buyers and sellers “think” in euros or dollars it will fall short of
money status. And until Bitcoin values are less volatile relative to the
currencies that now dominate real economics, users are unlikely to change their
monetary frame of reference.
That may be for the
best, given another Bitcoin quirk. The currency’s “money supply” will eventually be capped at 21m units.
To Bitcoin’s libertarian disciples, that is a neat way to preclude the
inflationary central-bank meddling to which most currencies are prone. Yet
modern central banks favour low but positive inflation for good reason. In the
real world wages are “sticky” : farms find it difficult to cut their employees
pay . A modicum of inflation greases the system by, in effect, cutting the
wages of workers whose pay cheques fail to keep pace with inflation. If the
money supply grows too slowly, the prices fall and workers with sticky wages become
more costly. Unemployment
tends to rise as a result. If employed workers hoard cash in expectation
of further piece reductions, the down turn gathers momentum.
Bitcoin’s money supply is still growing, its miners are
just over halfway to producing the total possible number. New coins will be
minted until around 2030. Miners may then introduce transaction fees as
compensation for their critical verification work . More worryingly, deflation is already a reality.
Soaring demand for the currency is partly responsible for boosting its price
(therefore reducing the price of everything else in Bitcoin terms, generating
deflation). But the knowledge that supply is ultimately finite is also a factor
.
Digital Fetters
That other
currencies remain the medium of account has so far been the Bitcoin economy’s
saving grace. If Bitcoin matured into a complete currency, with large numbers of workers using it as
their medium of account, then its inflexibility could bring economic havoc.
Money supply “shocks” like the disappearance of Mt Gox, could set off a
systematic collapse . Given a loss of faith in exchanges, users might with draw
their coins in a panic, leading to a dangerous decline in transaction volume. Such hoarding could threaten
Bitcoin’s status as a medium of exchange, leading to its complete demise as a
currency.
Reputable exchanges
with large institutional holdings could help stem such panics by advertising a
willingness to sell their Bitcoins to meet liquidity demand. Yet because
Bitcoin reserves are finite, users may not find the promise credible. By
contrast, central banks with the inexhaustible resources of the printing press
face no such inconvenient constraints
Analysis :
1.
“The Bitcoin economy
keeps growing”
Simple Present Tense, karena memakai rumus S
+ V1 s/es + O contohnya keep merupakan V1 dan ditambah s, jadi kalimat itu
memakai tensis dari Simple Present Tense.
2.
“The total value of
Bitcoins in circulation has risen to $7.9 billion”
Present
Perfect Tense, kerena memakai rumus S + Have/Has +V3 + O contohnya kalimat diatas memakai kata has dan risen
merupakan V3, jadi kalimat itu merupakan tensis dari Present Perfect Tense.
3.
“it will need to be
more than just a Mastercard for nerds”
Simple Future Tense, karena memakai rumus S +
Will/Shall + V1 + O + ANA contohnya kalimat
diatas memakai kata will dan ditambah V1 need, jadi kalimat itu
merupakan tensis dari Simpel Future Tense.
4.
“Economists reckon
money is anything that serves three main functions”
Present
Continuous Tense, karena memakai rumus S
+ be (am, is, are) + V-ing + O contohnya kalimat diatas memakai be (is ) dan
ditambah kata “anything”, jadi kalimat itu merupakan tensis dari Present
Continuous Tense
5.
“It should be a
stable store of value”
Past
Future Tense, karena memakai rumus S +
Would/Should + Be + O + ANA contohnya kalimat diatas memakai kata Should dan
be, jadi kalimat diatas merupakan tensis dari Pat Future Tense.
6.
“The American dollar
meets all three conditions”
Simple
Present Tense, karena memakai rumus S + V1 s/es + O contohnya meet merupakan V1
dan ditambah s, jadi kalimat itu memakai tensis dari Simple Present Tense.
7.
“Bitcoin does best
as a medium of exchange”
Simple
Present Tense, karena memakai rumus (-) S + do/does + V1 s + O contohnya
kalimat diatas memakai kata does dan best yang merupakan V1, jadi kalimat itu
memakai tensis dari Simple Present Tense.
8.
“Rather than relying
on central clearing-houses”
Present
Continuous Tense, karena memakai rumus S
+ be (am, is, are) + V-ing + O contohnya kalimat diatas memakai kata “relying”,
jadi kalimat itu merupakan tensis dari Present Continuous Tense
9.
“This elegant system
makes Bitcoin cheap to use”
Simple
Present Tense, karena memakai rumus S + V1 s/es + O contohnya make merupakan V1
dan ditambah s, jadi kalimat itu memakai tensis dari Simple Present Tense.
10.
“This rising
credibility as a medium of exchange supports Bitcoin values”
Present
Continuous Tense, karena memakai rumus S
+ be (am, is, are) + V-ing + O contohnya kalimat diatas memakai kata “rising”,
jadi kalimat itu merupakan tensis dari Present Continuous Tense
11.
“Yet Bitcoin is not
exactly a stable store of value”
Simple
Present Tense, karena memakai rumus (-) S + be(am, is, are) + not + V1 + O contohnya kalimat diatas memakai kata is
not dan exactly yang merupakan V1, jadi kalimat itu memakai tensis dari Simple
Present Tense.
12.
“interest has
attracted speculator”
Present
Perfect Tense, karena memakia rumus S + Have/has + V3 + O contohnya kalimat
diatas memakai kata has dan attracted yang merupakan V3, jadi kalimat itu
memakai tensis Present Perfect Tense.
13.
“Volatile values
could prevent Bitcoin from ever establishing it self as a medium of account”
Simple
Present Tense, karena memakai rumus S + V1 s/es + O contohnya value merupakan
V1 dan ditambah s, jadi kalimat itu memakai tensis dari Simple Present Tense.
14.
“Prices are given in
a prominent currency (US dollars, for instance)”
Simple
Present Tense, karena memakai rumus S +
be(am, is, are) + V1 + O contohnya
kalimat diatas memakai kata is dan given
yang merupakan V1, jadi kalimat itu memakai tensis dari Simple Present Tense
15.
“The currency’s
“money supply” will eventually be capped at 21m units”
Simple
Future Tense, karena memakai rumus S + Will/Shall + V1 + O + ANA contohnya
kalimat diatas memakai kata will dan eventually yang merupakan bagian dari V1,
jadi kalimat diatas memakai tensis dari Simple Future Tense
16.
“Unemployment tends
to rise as a result”
Simple
Present Tense, karena memakai rumus S + V1 s/es + O contohnya tend merupakan V1
dan ditambah s, jadi kalimat itu memakai tensis dari Simple Present Tense.
17.
“Bitcoin’s money
supply is still growing, its miners are just over halfway to producing the
total possible number”
Present
Continuous Tense, karena memakai rumus S
+ be (am, is, are) + V-ing + O contohnya kalimat diatas memakai kata “growing”,
jadi kalimat itu merupakan tensis dari Present Continuous Tense
18.
“New coins will be
minted until around 2030”
Simple
Future Tense, karena memakai rumus nominal S + Will/Shall + B1 + O + ANA
contohnya kalimat diatas memakai kata will dan be, jadi kalimat diatas memakai
tensis dari Simple Future Tense
19.
“More worryingly,
deflation is already a reality”
Simple
Present Tense, karena memakai rumus S + V1 s/es + O contohnya tend merupakan V1
dan ditambah s, jadi kalimat itu memakai tensis dari Simple Present Tense.
20.
“Such hoarding could
threaten Bitcoin’s status as a medium of exchange, leading to its complete
demise as a currency”
Present
Continuous Tense, karena memakai rumus S
+ be (am, is, are) + V-ing + O contohnya kalimat diatas memakai kata
“worringly”, jadi kalimat itu merupakan tensis dari Present Continuous Tense.
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