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30 sats \ 7 replies \ @Undisciplined 18h \ on: How Does Money Acquire its Value? econ
Bob Murphy has explained how Bitcoin fits into this picture pretty well.
In short, it started accruing value as a cryptographic toy for nerds, who eventually traded a bunch of bitcoin for a couple pizzas. Price discovery took over from there.
I heard his explanation and it make sense in terms of what Mises had to say. Perhaps it could be regressed further back because of the relationship between the value of the fiat at the time the pizza was purchased by BTC. Then, the value of BTC could be regressed all the way back to gold and silver barter times.
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I don't think it can from there because it had no direct connection to dollars, the way dollars did to gold and silver.
You could probably start earlier than the pizza exchange though, by thinking about all of the initial mining as exchanging energy and computation resources for bitcoin.
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All of the resources to go into the initial BTC mining had to be paid in fiat currency, didn’t they? If so, then BTC does still have a connection, indirectly, through fiat, to gold and silver. Are direct connections of gold and silver to BTC necessary if there is a connection due to goods and services being exchanged?
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The reason that connection works for fiat is that those particular notes were already circulating when they were backed by gold and silver, so there were already established exchange rates for them. Price discovery then reduced fiat's purchasing power towards what would have been its exchange rate had it began de novo.
Bitcoin's emergence as money is more like what we imagine gold's to have been, where it began trading for real goods, rather than being a mutation of the existing medium of exchange.
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Bitcoin's emergence as money is more like what we imagine gold's to have been, where it began trading for real goods, rather than being a mutation of the existing medium of exchange.
Yes, I understand that! However, the pizza also had a value it terms of fiat, which makes BTC indirectly associated with fiat. You can see this now, because people are constantly talking about BTC in terms of the fiat exchange rate versus talking about it in terms of goods it can purchase. They constantly look at how many FRNs or whatever it takes to buy a BTC.
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I think that's because those fiat currencies were the universal media of exchange in their regions, so bitcoin was bound to acquire an exchange rate with them.
We're still early enough that bitcoin could emerge into full moneyness through a more direct connection with those currencies. Perhaps that's where this stablecoin stuff is taking us.