The ups and downs of the digital currency, Bitcoin, is generating a vast amount of speculation in financial circles. Most people will have been bewildered by this innovation. They have been used to dealing with real money and have a degree of understanding of how inflation and deflation affects their decisions. The volatility of Bitcoin is beyond their comprehension. Many of those who have tried this digital currency have had their fingers burnt while others are hoping that the price of the Bitcoin they have acquired will make them rich by growing exponentially.
Intangible money is a means of buying tangible goods and services. Speculation in dollars, euros and other real currencies by investors, banks, financial managers and governments does not hide the fundamental usage of money to pay for those goods and services that are available. These goods and services are produced by irreversibly using up the limited supply of natural material resources, including those providing the necessary energy to do the work. That is an unsustainable process. So potency of real money will decline as these resources become scarcer. Economic contraction will set in, despite the protestations of economists.
Bitcoin will inevitably share the fate of real money after causing a lot of confusion amongst those who fallaciously believe it can cope with reality.
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