Bitcoin is far more than a payment method. Bitcoin is a political statement. It’s a global currency that doesn’t have the backing of a government – and it’s for that reason that it is better than other currencies.
Understanding Austrian economics is a great way to learn about Bitcoin because the economic background allows us to understand why it makes sense as a currency, why it makes sense as a payment platform, and many of the use cases for Bitcoin – such as international currency.
A currency is a means of exchange. Currencies get their value from their power to function as that means of exchange. In the most primitive societies, something like corn can function as a currency. It can be weighed and scored on quality and can be traded for any number of goods. A cow or a television can be measured in “pounds of corn.”
Metals were used as a means of exchange because they held value more long-term than corn. Silver and gold don’t expire or deteriorate as fast as corn, so they can preserve value. Paper dollars representing gold and silver emerged because they are more easily handled than precious metals, and can be broken up to represent more granular amounts without using a chisel and a scale.
Even when dollars stopped representing precious metals, those paper dollars were given value because people agreed they have value. That value continues to fluctuate – when more dollars are flooded into the market, we value dollars less than what they once were. That’s why bread costs $3 today instead of $0.25 like it may have fourscore years ago. Sorry, I’ve been trying to use the word fourscore for a while now.
Bitcoin is a currency that gets its value from this use. People believe it has value compared to other currencies. It can be viewed as more efficient than dollars because it can be transacted globally without exchanging to new currencies. Because there are a fixed number of coins that will ever exist, it stores its value longer than a dollar that is subject to the whims of governments – and those Austrians were fans of currencies that best maintained their value long-term. It stores its value better than gold, which had an undetermined unmined quantity.
The Austrians were free market people. They saw the most advanced societies as those societies that welcomed the division of labor, which means societies that welcomed trade of products and services from the widest ranges of people. A currency that must be converted risks transaction fees and governmental overhead than can limit some people from sharing products or services – especially across country borders. By eliminating those obstacles, a currency can welcome more contributors into the economy to produce and consume.
Last, there are use cases for Bitcoin that benefit the individual, and the individual is the most important player in the Austrian economy. Everything starts with the individual – the want to spend. The need to produce. That is where man finds meaning according to the school of Austrian economics. Individualism is the center of economic theory, psychological theory, and social theory.
Those economists want to remove obstacles in offset to best enable individualism. In addition to a global currency that is more efficient than dollars at enabling this, cryptocurrency offers additional benefits to the individual. Man can skip the administrative hurdles that exist to promote, but are actually limiters to the economic sharing that exists in the economy.
Austrian economics is an excellent starting point to learn about Bitcoin because it is through this study that we learn how currency gets its value, the characteristics of a good currency, and the importance of a global currency in a world that is increasingly global in its enterprise.