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The Principles of Money and How You Should Think of Bitcoin

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To really understand bitcoin and what it aims to do, you need to understand what money is. The two terms that get thrown around a lot in regards to whether bitcoin or any other digital currency is a good investment are “medium of transfer” and “store of value”. These are important components of monetary assets, but aren’t the end of the conversation.

What Makes a Monetary Good

There are three main purposes you need to think of when you determine how useful a monetary good is: medium of exchange, store of value and unit of account.

Store of value means that users are comfortable storing their wealth in terms of that monetary good. This is generally a sign of stability and trust in the long-term value of the monetary good.

Next, you have medium of transfer, which is basically a “cash” use case. Everyone is willing to transfer value to each other by using the asset. They might not necessarily hold this for long, but it is widely used enough that you can trust in its usefulness.

The less heard of quality for a currency to have is being a unit of account. This means that people value their goods in terms of that particular currency. If you were to ask someone how much something costs, chances are they would quote the value in terms of their local currency. That makes the local currency the unit of account.

Right now, bitcoin is not a unit of account because there is no set bitcoin price a good would be sold in. Instead, you have values quoted based on the current BTC/USD exchange rate, which is very different.

The Path of Monetary Evolution

It can take decades for a good to go through the full evolution of its use as a monetary good, and that use can change with shifts in the economy. For example, gold would have been used for all three purposes, but is now only used as a store of value. Similarly, PayPal captured the medium of transfer use case, but never developed a meaningful solution to become a unit of account or store of value.

So where is bitcoin now? Based on the way it is being traded, it is mostly a store of value. In the beginning, there were lots of situations where users would spend bitcoin on trivial objects, but now with the meme “HODL” and the number of rabid bitcoin supporters, it is mostly a long-term investment.

This is the standard path a new monetary good takes. Nobody would want to use it as a medium of transfer because the value is fluctuating so much that it is infeasible for daily use. Until the equilibrium amount of demand for the good comes online and the price somewhat stabilizes, it is unlikely to become a medium of transfer. The same applies to unit of account, as mentioned above.

No Defined Outcome

A common gripe against bitcoin is that it is not a useful currency because it does not fulfill the store of value condition, but this ignores the shortcomings of fiat currency. Nobody holds more than a small proportion of their net worth in fiat, because it is not a good store of value. Inflation is constantly eroding the value of the currency and that is its core weakness.

Additionally, when you look at unstable countries, such as Argentina, there are multiple monetary assets in use. They use the Argentinian peso as a medium of transfer, but opt for the US dollar as a store of value.

So there is no defined outcome for bitcoin’s evolution. It doesn’t have to fulfill all the use cases for it to be useful, it just has to be better than our current options for a use case.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

Why Investors Should Pay Attention to RHOC

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In every industry, there is one company that tries to become so technologically superior that it can overcome all the other challenges posed by their competition. Whether the other competitors have first mover’s advantage or are just plain better marketers, one company can disrupt this by being so much more advanced where it matters.

Bitcoin is constantly criticized for its scaling ability. The speed and safety of the network has proven to be lacking, but the story and community behind it have allowed it to become massive. RChain was formulated with the core belief that by creating a solution that solved all the problems Bitcoin couldn’t, it could gain dominance.

RHOC’s Main Value Proposition

To sum up the entire goal of RChain (or RHOC), they aim to be the fastest and most efficient solution on the market. From there, it should be simple to take advantage of the core communities that have been built around media favourites like Ethereum and Bitcoin.

RChain gets its name from the mathematical innovations that are used to fuel it: Reflective High-Order Calculus. This calculus was invented by the founder, Greg Meredith, and it allows for concurrent calculations to be done in a way that will enable the continued scaling of the network.

There are 3 benefits that are constantly highlighted about RChain. Speed is first and foremost, since it is a key selling point for everyone. With the ability to process 40,000 transactions per second (and high hopes of scaling to 100,000 transactions per second), this puts it way ahead of the current capabilities of Bitcoin.

Then you have the tools provided for developers, which should greatly improve their ability to create apps and products that work well with the platform. But most of all, RChain has put a lot of work into creating their own RChain Collective. The collective is a public group composed of developers, investors, and users of RChain. By creating this inclusive collective, the RChain team has guaranteed that every member has some say in the future of the platform.

RHOC’s Recent Performance

2018 has seen a slow but consistent rollout of the features promised by the RChain Cooperative, and now many of the promises are starting to come to fruition. As more features are offered and the mainnet demonstrates its ability to handle a higher number of transactions, RChain will become much more appealing for investors and developers.

In situations like this, the first thing people usually say is that it is a pump n’ dump scheme, but there is one key reason why this doesn’t fit RChain. They are continually updating their development timeline, and have released consistent offerings along the way. Their testnet is planned to be released in September 2018, with the mainnet following sometime in Q1 2019.

Although RHOC is down 31.4% in the last month, it is well-positioned for a comeback. Its total market capitalization is $121 MM, which places it in the top 20 of ERC-20 tokens. Making a bet on RChain is really about making a bet on the team they have in place, and their ability to deliver on the massive promises they have made. Because if they do, then it could mean massive disruption in a sector that has mostly been focused on Bitcoin and Ethereum from the beginning.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

Why Investors Should Pay Attention to Metal Coin

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The current blockchain and ICO investing climate is very much in favour of grand solutions that are going to “revolutionize business” and other extremes along that line. But these companies are missing a very real problem in the crypto world: many potential users are still afraid of investing in them.

Right now there is a lot of opportunity in consumer facing applications. If any protocol can figure out how to harness the interest of consumers while making it much more accessible than Bitcoin, they have a major opportunity. This is a lot of why Coinbase has been so successful – they are considered to be the simplest to deal with.

Introducing Metal Coin

With a special focus on day-to-day usability, Metal Coin (MTL) is an ERC20 token that rewards users with free tokens when they spend cash, send crypto, receive crypto, or convert fiat to crypto (applies vice versa as well). Using the app to do any of these actions can earn up to 5% back in MTL tokens.

This may sound like a ludicrous and infeasible reward, but it is very similar to how credit card companies currently work. And blockchain companies are generally run in a more streamlined manner with lower overhead, which could explain the higher than expected payout.

Basic Use of Metal

Signing up for Metal is designed in a streamlined manner so it is easy to get your money into the system and then you start getting paid in MTL right away as you use it. The process for payouts is referred to as Proof of Processed Payment (PoPP) which distributes coins when payments or transfers have been verified.

As with any other cryptocurrency investment, users must verify their identity and be fully compliant with KYC rules relevant to Metal. Your MTL can be stored in any wallet that supports ERC20 tokens, and there is a special web wallet called Metal Vault available as well.

Current Performance of Metal

Metal suffered a lot in the 2018 crash, and has continued to go down since then. From a peak of ~$11.00, it has now dropped to around $0.67. This can be seen as a bad thing, or it could be an opportunity to capitalize on. Metal is likely to move in sync with the entire crypto market, since it is an entrance funnel for funds. If you believe crypto is going to make a comeback (which I assume you do if you’re reading this), then MTL would be a high-correlation bet on the entire industry.

The team has been working on expanding Metal since 2016 and is continuing to distribute MTL tokens through PoPP as more users perform transactions. Ideally, these tokens become higher in value as the demand in the Metal app grows.

In a lot of ways, MTL has the potential to become a gateway to the cryptocurrency ecosystem for many users. Metal is a cryptocurrency designed to capitalize on the current inaccessibility of cryptocurrency by marrying it with the rampant mobile payment trend. Consumers are generally drawn into the idea of “free tokens”, and it ends up working as a “gateway drug” of sorts to other cryptocurrencies.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Bitcoin

What Economists Don’t Understand About Bitcoin

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Of all the things to irritate a Bitcoin enthusiast, perhaps the worst is when economists come out with their negative opinions regarding Bitcoin. Paul Krugman, the prince of establishment economists, recently publish “Transaction Costs and Tethering”. The article explained why he believed Bitcoin would collapse, and was designed to create controversy.

The first thing we all need to realize is that Bitcoin is at its core an anti-establishment construct, whereas economists are all “buyers” of the current system and believe it is working well. These economists look at HODL’ers belief that Bitcoin is a hedge against the fiat system as a fringe bet, whereas Bitcoiners generally believe there are major problems endemic in the system.

Bitcoin as an Inefficient Protocol

The common point naysayer will make (and Krugman did rest heavily on this point) is that Bitcoin is extremely inefficient. The amount of electricity it uses and fees charges for transactions is higher than any option in our current system, and it is a step backwards.

What these criticisms fail to factor in is the fact this is all on purpose. Efficiency isn’t always a good thing. The army maxim “two is one, and one is none” could be considered inefficient, but sometimes survival is more important than efficiency.

Efficiency is what has brought about much of global warming and pollution. It was “more efficient” to do things a certain way, but that also led to short-term compromises of the future. And as more investors come out to say we can expect major problems in our future due to the way the economy has been run, it is possible that the way the pensions, fiscal deficit and financial markets have been managed might not have been the safest way.

Safety in Volatility

Bitcoiners tend to believe that Bitcoin is a safer method than the current system, even though there is a high degree of volatility. All the risk is visible, like waves on a lake, whereas the dangerous part lies beneath the water.

The argument that the current fiat system has held up well is true, but that says nothing about where the market is going to go in the future. As we know regarding investment funds, past performance doesn’t indicate future returns. This applies to the entire financial system and is exactly why Bitcoin is taking such a strong hold on the zeitgeist at this period in time.

Economists seem generally unable (or unwilling) to grasp the idea of an impending crash that changes the entire economy. But then again, were they ever able to accurately predict crashes and crises in the past?

What This Means For the Future

The fact that this group of financial experts can’t understand the “doom and gloom” predictions of those who are pro-Bitcoin says a lot about how they think about risk in the markets. The future is always uncertain, and an improvement in efficiency today says nothing about improvements that may occur tomorrow. It may be preferable to have a robust solution that can withstand a massive crisis than to put all of our trust in banks.

If anything, the real estate crash of 2007 and continuing sovereign debt crisis should be enough of a problem that we can all admit the system isn’t perfect. Yes, the US dollar has served the economy well until now, but the future is always uncertain. Efficiency has gotten us this far without major calamity, but it might be time to focus on safety in the markets as well. And as anyone who has struggled to put a life jacket on knows, safety is inefficient.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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