Bitcoin: Money Revolution or speculative bubble? Bitcoin Investment(III)

3. Bitcoin Investment: in essence, it is not money, and investment still needs to be viewed objectively

According to the manifestation of money, we can divide money into two categories: physical currency and credit currency: physical currency is mainly used as the general equivalent of commodity exchange, among which metal currency is the most representative one; in the 1930s, the global economic crisis caused global panic and financial chaos, forcing major capitalist countries to break away from the gold standard and credit currency successively. The silver standard, the currency that the country provides credit endorsement, emerges at the historic moment, namely the so-called credit currency._DJMINER

1. Bitcoin and real currency

Physical money is the initial form of money produced in the process of commodity exchange. It is a general form of value expression as a medium of commodity exchange and is based on its own value as a commodity. Commodities that can be used as real money have the following characteristics: ① universal acceptance; ② stable value; ② separability of value mean; ④ portability and portability. Metal currency is the most representative real currency, in which gold as real currency still plays a role in economic activities. Next, we will compare the similarities and differences between gold and bitcoin according to the four characteristics of real currency, and then discuss the possibility of bitcoin replacing real currency.


From the perspective of universal acceptance, gold has the dual attributes of commodity and currency. Hu Jintang (2005) believed that these two attributes play a role in the historical development at the same time, but the two attributes are not the same in different periods. From the perspective of commodity attribute, gold, like other general commodities, plays a role in real life, such as the use of jewelry, electronic industry and other fields. At the same time, the mining of gold also reflects the value of human labor. From the perspective of monetary attribute, Wang Suzhen (2014) believes that the essence of currency is general acceptance. Before the collapse of the Bretton Woods system, gold was the most widely accepted currency and was used as a general equivalent to measure the value of other commodities. Even in the current credit currency system, gold is still the value basis of all credit currencies, and can be used as a means of settlement in the world. The history of gold is almost as long as the history of human beings. From the initial fanatical worship to becoming a special commodity to play the role of trading media, the position of gold in human trading activities can not be replaced. Under the classical gold standard system, gold is linked to a country's currency, and the value of each currency is measured by a certain amount of gold. Even after the collapse of the Bretton Woods system, a country's gold reserves are still used to balance the balance of payments, maintain or influence the exchange rate level, and play a special role in stabilizing the national economy, curbing inflation and improving international credit._DJMINER


For bitcoin, in essence, bitcoin is the product of the development of computer technology. As a series of numbers recorded on the carrier, bitcoin has no use value in life. It is a one-sided understanding that the mining process of bitcoin consumes electricity, which can reflect the intrinsic value of bitcoin. The exploitation of bitcoin is a reward for computers to solve mathematical problems. This process is not a value creation activity participated by human beings, but a mathematical game recognized by developers and participants. Therefore, bitcoin has no use value, its mining process can not reflect labor value, and there is no commodity attribute similar to gold. Secondly, from the perspective of currency attribute, the acceptance scope of bitcoin is quite limited. At present, there are not many enterprises that accept bitcoin as a means of transaction. Moreover, due to the increasingly strict global supervision and sharp price fluctuation of bitcoin, major social media platforms have begun to reject virtual currencies such as bitcoin. Twitter announced an advertising ban on March 26. In order to avoid potential fraud that would cost the public a lot of money, the platform will ban the emergence of virtual currency ICO and sales advertising from March 27. Facebook and Google have already made similar decisions, banning virtual currency advertising. Reddit, a well-known forum and social networking site, has also announced that it will stop accepting bitcoin payments.


From the perspective of value stability, the price of gold is affected by many factors. Jiang Xianling (2017) studies show that the cycle of spot price of gold in London is opposite to the cycle of economic development in the long cycle; the middle cycle shows the characteristics consistent with the cycle of commodity price; the short cycle gold price is greatly affected by unexpected factors, and investor sentiment and expectation are the main reasons for the fluctuation. But the intrinsic value of gold, that is, the value of labor time included as a commodity, remains unchanged for a long time, because there has not been a major breakthrough in gold mining technology for many years. Since the birth of bitcoin, the debate on its intrinsic value has never stopped, mainly because bitcoin itself does not contain the value of labor time and is not linked to any physical assets, which also causes the price fluctuation of bitcoin to be extremely fierce. We take the Comex gold price and bitcoin price from January 6, 2013 to May 10, 2018 for calculation. The standard deviation of the two prices is 112.46 and 3179.91 respectively. Bitcoin's price fluctuation in the same period is far greater than that of gold, and bitcoin can't compete with gold in terms of value stability.


From the perspective of value uniformity, the smallest unit of bitcoin is Cong, and a bitcoin is equal to 100 million Cong. in theory, like gold, bitcoin is equally divisible in value.


From the perspective of portability and portability, under the background of small trading volume in early human society, the commercial activities of all countries can be settled in the form of gold coins and gold bars. Compared with other metal currencies, gold has the characteristics of portability and portability, because the same quality of gold can represent more value. With the development of society, gold can not adapt to the rapid growth of trading volume and is gradually replaced by substitute currency and credit currency. In this respect, bitcoin has incomparable advantages over physical currencies such as gold. The storage and transaction of bitcoin are dependent on bitcoin wallet and Internet environment. Just connect your own account to the network, you can transfer and trade globally. Therefore, convenience is often considered as a great advantage of bitcoin._DJMINER

2. Bitcoin and credit currency

Credit currency is regulated by national laws. It is a kind of currency that is not based on any precious metal, and its value is far lower than its value. At present, the currencies issued by all countries in the world are basically credit currencies. The manifestations of credit currency include secondary currency, cash or paper currency, bank deposit and electronic currency.

In Keynes's theory of money, it is pointed out that the money of account is the currency of debt, price and general purchasing power, which is the original concept of monetary theory. Chu Junhong (2002) shows that the essence of money is credit, and the essence of money development is the decline of transaction cost. In essence, credit currency is a kind of debt endowed by the State subject with the nature of legal compensation, and its circulation ability is enforced by law, which is the guarantee of general acceptance of credit currency. Generally speaking, credit currency has the following characteristics: ① value symbol; ② debt currency; ② compulsory and legal compensation; ④ the state body can regulate the issuance of credit currency._DJMINER


The biggest obstacle for bitcoin to replace credit currency is the decentralization. This feature means that bitcoin lacks issuing entities, and teams with development capabilities are likely to develop new digital currencies, bifurcated coins and counterfeit coins, which can theoretically have the same functions as bitcoin. So we can't reach a consensus on which kind of virtual currency we should use to trade, because there is no law to give bitcoin and other virtual currencies the forced circulation ability. Without the endorsement of countries or organizations with public credibility and the linkage with any physical assets, bitcoin as the credit basis of currency does not exist, so it can not perform the function of currency well. Even when sovereign states declare bitcoin illegal, bitcoin may be worthless.


Bitcoin can't replace credit currency, but compared with real currency, bitcoin is theoretically feasible in the aspect of value uniformity and separability, and its great advantages in portability and portability can't be ignored. Therefore, we believe that it is necessary to draw lessons from the technology of special currency. Yao Qian, director of the Institute of digital currency of the central bank, also pointed out in the article "technical considerations of the digital currency of the central bank" that the primary starting point of the research and development of the digital currency of the central bank in China at the present stage is to supplement and replace the traditional real currency. But the essence of bitcoin is not money, and its investment still needs to be viewed objectively._DJMINER