Compare Bitcoin with iPhone X, Dollar and Gold / Cloud4Y's Blog

We will not side with the advocates of bitcoin or their opponents. We simply compare bitcoin with Apple products, national currencies and gold. Conclusions about what place Bitcoin will take in the future everyone can do for himself.

Money - a specific product with the highest liquidity, serving as a measure of the value of other goods and services. One of the functions of money is the role of an intermediary in the exchange of some goods for others.

To begin with, we take from this definition a corollary about the possibility of comparing sets of goods by liquidity and drawing conclusions about the greatest ability of a particular product to become or be money.

Bitcoin vs iPhone X

Since money is a commodity, albeit a specific one, we compare bitcoin with the iPhone X, which we take as an example of a commodity in the usual sense.

The price of a product is determined by the ratio of supply and demand. The higher the demand with limited supply, the higher the price. Demand and liquidity of a product are largely dependent on brand strength.

A brand, as an association in the minds of the target audience, symbolizes any specific product qualities or characteristics of the product manufacturer itself. In essence, this is an understanding of whether you want or need something or not. For this, the brand must be recognizable. Apple iPhone brand recognition protects the company's smartphones from competitors' products, and the bitcoin economy from other altcoins.

As a rule, rights to use a brand are legally protected. In the case of Apple, this is so, in the case of bitcoin, no. With the advent of an altcoin with a stronger brand, the leadership of bitcoin, and hence liquidity, may be lost.

While the iPhone has the necessary quality for consumers, the value of the Apple iPhone brand and the liquidity of their smartphones are growing, however, in case of mismatch of expectations of reality, liquidity is reduced. An example of this effect is the drop in demand for the iPhone X due to the inoperability of the touchscreen at low temperatures.

Apple limited the supply of the iPhone X with high initial demand for the device, selling smartphones in small batches, of course, betting on increasing the liquidity of the product. The higher the liquidity of the product, the easier it is to exchange it for the most liquid one - money. Conducting the volume of supply and demand, Apple is able at certain times to bring the iPhone closer to the state in which the product becomes money. The peculiarity of the issue / mining of bitcoin is the limited supply, regardless of the number of miners. It is easy to see the similarities in the Apple distribution model at the beginning of sales and the algorithm embedded in bitcoin.

Money should not significantly change its properties if they are divided into small parts or combined into one large part. Money should be well kept. iPhone is obsolete, prone to breakage and wear. Therefore, in the future, due to the lack of divisibility, integrability and preservation, the iPhone cannot act as money; bitcoin does not have these problems.

If a vulnerability is discovered in the bitcoin system, it will affect like a flaw in the iPhone. In the absence of this problem for an altcoin with a strong brand or in the presence of an advantage that bitcoin does not have, this cryptocurrency can win back part of the demand from bitcoin, reduce its liquidity, price and ability to be money in its favor.

Bitcoin vs National Currencies

The monopoly on violence (English monopoly on violence, German Gewaltmonopol des Staates) - the concept of the state, set forth by Max Weber in the essay "Politics as a vocation and profession." In particular, he argued that it is impossible to define a state sociologically in terms of its goals or what it does, since it is impossible to show historically that any particular task or function is specific to the state. Therefore, Weber said, a clearly defined sign of the state should be sought in the means that it uses. One, the legitimate use of which is recognized only by the state, is violence (police, army).

Having such a monopoly, states have the ability to issue domestic money, ensuring their liquidity by law in the territory in which it operates.

Article 75 of the Constitution of the Russian Federation stipulates that:

1. The monetary unit in the Russian Federation is the ruble. Money emission is carried out exclusively by the Central Bank of the Russian Federation. The introduction and issue of other money in the Russian Federation is not allowed.
2. Protection and ensuring the stability of the ruble is the main function of the Central Bank of the Russian Federation, which it carries out independently of other public authorities.

The police and the army must be supported, which means the country's economy must generate a sufficient amount of goods and services. As a result, the ability of the national currency to be money is determined by the strength of the national economy and indirectly by national power structures. Due to the violation of the ability of the economy to generate goods and services, the amount of money in circulation needed for maintenance, including of law enforcement agencies, begins to exceed the served commodity turnover. This is manifested in the whole known process of inflation. National money is losing liquidity and is being superseded by goods with higher liquidity. The phenomenon of dollarization of crisis economies is also familiar to many. The reason for this is that, by many estimates, the United States has the largest economy.

Bitcoin is not connected with the strength of any country's economy, which makes it independent of national crises. Its liquidity leads to the fact that in some unstable countries, such as Argentina , bitcoin displaces the national currency in circulation. At the same time, the reason for this is a further opportunity to exchange bitcoins for dollars.

The ban on bitcoins in large economies leads to a loss of its liquidity, however, with a certain weakness of the state, the prohibitions cease to apply, partly due to the weakness of the power structures. Thus, bitcoin is more liquid than the currencies of states with weak economies and monopolies of violence and weaker than the currencies of strong states.

For fast international settlements, bitcoin is a convenient and effective means of payment, which, in the context of increasing globalization, adds bitcoin “cash capabilities”.

Bitcoin vs Gold

Bitcoin is compared to gold. In favor of the similarities, it is often said that bitcoin, like gold, needs to be mined / mined, which is also an energy-intensive process. However, it is worth noting that bitcoin is created during mining, and gold is only mined, but it is synthesized under very specific conditions.

Many heavy elements are synthesized in the bowels of stars, but this is true only for atoms up to iron. The place of occurrence of heavier elements is not completely clear.

“The origin of about half of the heavy elements in the universe is still a mystery,” says one of the authors of the new work, Hans-Thomas Janka of the Max Planck Institute of Astrophysics (MPA). “For a long time it was believed that they could be produced in supernova explosions, but new models reject this theory.”

Now, Hans-Thomas and his colleagues from the MPA and Free University of Brussels (Vrije Universiteit Brussel) conducted a detailed numerical simulation, showing the performance of another version. It says that gold, platinum, thorium, plutonium and other heavy atoms are born when neutron stars merge.

According to MPA, the researchers combined in their model hydrodynamic and relativistic calculations with calculations of nuclear reactions. The computer showed what happens in a binary system of neutron stars, when they, circling around each other, come together and collide.


The approach of a pair of neutron stars and the first hundredth second after a collision. Yellow indicates a red-hot substance thrown away (illustrated by Max-Planck-Institut für Astrophysik).

It turned out that with such a merger, high pressure and powerful tidal forces eject a portion of very hot matter weighing several Jupiters into space. When this plasma clot cools down to 10 billion degrees, numerous nuclear reactions that create superheavy atoms begin to take place in it, and due to the decay of the latter, they are simply heavy (like gold). In the future, this substance spreads throughout the Universe, becoming bricks for new stars and planets.

An extremely long journey has been made from the state of individual atoms to the ingots and jewelry that people now possess. But even such a rare and specific process as the collision of stars in itself, the accompanying amount of energy and other resources necessary on a cosmic scale give a clear understanding that the creation of gold is a much more complex and energy-intensive process than cryptocurrency mining.

Physics vs Math

In the study of gold isotopes, the American physicist Arthur Dempster in 1935 discovered that a noble metal has only one stable isotope with a relative mass of 197. It is generally accepted that in order to synthesize it, one must have at its disposal an isotope with a much larger mass, but such nature simply does not exist, and if it is synthesized artificially, then it cannot be in a stable state for a long time.

It was possible to get gold only using the mercury and platinum elements closest to it. It makes no sense to turn platinum into gold, since it is more expensive than it. Remains mercury. If we hypothetically imagine how, under industrial conditions, people from mercury will begin to receive a noble metal, then based on knowledge from nuclear physics, we begin our reasoning from the fact that we will use 50 kg of mercury. In this amount of substance is only 74 g of mercury-196, which can theoretically turn into gold.

196Hg + n = 197Hg * + γ

But, the process does not end there and continues on:

197Hg * + e- = 197Au

Suppose from 74 grams as a result of nuclear transformations, we get the same amount of stable gold. After simple calculations, we come to the disappointing conclusion that 74 grams of gold can be obtained by placing a ball of mercury in the reactor zone for four and a half years. And then everything that we get will need to be cleansed. The resulting gold will be many times more expensive than natural, mined from the poorest ores in a mine or in a gold mine.

Bitcoin is based on mathematics, which is a descriptive language of physics. The physical process underlying the creation of gold is more complex and significantly more energy intensive than mining bitcoin. For this reason, such functions of money as a means of accumulation and a means of forming treasures, Bitcoin performs worse than gold, the value of which is seriously questioned.

Qualitative homogeneity, portability and recognition speak in favor of gold as a commodity, which can be money. However, as a medium of circulation, gold is significantly inferior to national currencies and bitcoin. The spread between buying and selling physical gold in a bank is huge. It is unprofitable for banks to create a competitor to national currencies. A possible solution is a metal account, but you do not get physical gold, and the value is precisely in the nature and properties of this element.

conclusions

By comparing so many different material values, it is easier to understand the economic essence of the Bitcoin system and the place that it occupies and will occupy if it is not replaced by another altcoin or type of money. However, many issues were not raised precisely in this article, but are already being widely discussed. For example, the problems of the deflationary economy of bitcoin, the problems of credit financing in the conditions of anonymity and the absence of guarantees / protection of the state. Without leverage, an economy will develop more slowly than a competing economy with loans. A possible solution is a solution based on smart contracts, but this is an advantage of other cryptocurrencies.

The value of gold is justified within the framework of the article, first of all, by the complexity of obtaining its atoms with a large number of useful properties. According to existing scientific data, an even more complex rare and more valuable phenomenon is life as a form of the existence of matter in the Universe. Due to its wide distribution on Earth, it is necessary to pay attention to this when setting priorities.

Bitcoin is an interesting and promising “commodity” for the role of money. Having advantages and disadvantages, it will not completely supplant either state money or gold, but it can occupy its important place.

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