This modified from a post about BitCoin I made on StackExchange.
A lot of people are asking the same question and not getting a clear answer. This question may be the answer to itself unless I am incorrect in some observation.
Where does the money go that brings a bitcoin into “circulation”? Who gets the riches for the 21 Million BitCoins that were created out of thin air?
If I understand correctly, the “Miners” are the top of the food chain. When they “mine” a bit coin from the 21,000,000 coins that are in the “mine”, the “miner” receives either goods, services or fiat money when they transfer the bitcoin to someone else.
How much work is required to “mine” a bitcoin? Obviously enough that people like me don’t do it.
This is no different than the US Government printing a $100 bill and transferring that bill to someone else to pay for goods or services is it? The bill essentially came from thin air just as a bitcoin does.
The concern I see on this site and others like it go back to the 1940’s and the original thoughts on non-entity dependent currency. The discussions then tied the new money to things of value, like the gold standard but a more broad mix to prevent bubbles and bursts.
BitCoin has no backing at all. If you demand your money one day, there is no “good faith of the bitcoin miners” to give you your money back. That said, how are those old German Marks and Zimbabwean Dollars looking? Even government backed doesn’t guarantee anything. Since the Gold Standard, the US government has nothing but the faith of the world in the dollar to back up the dollar. Let’s be real here, currencies fail, government backed or not.
My Thoughts – At the end of the day, bitcoin is a fiat money that only has value because the market says so, not because there is any government or physical thing backing it up. The fact that the “miners” building the code get the income and not the founders is a huge move in the right direction. Marx would be proud, an not in the bad Stalin way.
The flaw with bitcoin over time might be it’s inability to grow as population and popularity grows. I want a Coke to be $1 forever, My parents want it to be a dime, but neither want to pay .00000000214 bitcoins. That just looks weird. How does a small child make sure he isn’t ripped off and charged .0000000214 bitcoins for a Coke? A four year old gets a dime or a dollar.
We need money markets simply because none of us want to stand on the corner and trade whatever it is we do for those things we need. Can you imagine if I had to charge a client one chicken, four potatoes, a bottle of wine, a bag of charcoal, a match and some dish soap so that I could make them a video? The system would break down and nothing would ever happen.
In a perfect world there would be only one form of “money” so we could all set a base value for goods and services and the markets would control pricing. The Euro was a start in that direction but with Brexit, maybe not. We all want a good deal, but none of us (that earn money) really want to pay for someone else’s good deal.
I like the idea of bitcoin. The fact that I wouldn’t have to give money to PayPal each time I transfer it is a bonus. The fact that no one became a multi-billionaire for creating bitcoins is even better. Will I use BitCoin? Time will tell.