Bitcoin: " money or not money ? " :

Bitcoin is the most famous virtual currency. But is it just a currency? Not if we stick to the classic definition. Explanations. By Jacques Baudron, Paris Sud University - Paris-Saclay University
From the top of its fragile highs and lows, bitcoin dominates the poster for several months. But, we warn, bitcoin has no intrinsic value, and virtual currencies are not receivables. What does this statement mean? To find out, one must first understand why a currency is a debt.

The first claims, stories of goldsmiths
During the first half of the seventeenth century, goldsmiths are among the few trades able to fight headaches. They are equipped, for their activity, strong safes. The wealthy merchants, who are particularly vulnerable, have therefore quickly solicited them to shelter their precious metals. The case is obviously not free: it is against a recognition of nominative debts and, of course, fair compensation for the service rendered. Upon presentation of this paper, all or some of the precious metals deposited could be withdrawn.

As things evolve, IOUs become anonymous and only mention the amount of gold required in return. IOUs being much easier to handle than gold, they are quickly preferred for trade in goods or services. These notes, exchangeable for the mentioned gold weight, constitute receivables.

Goldsmiths have permanently in their trunk of gold reserves that sleeps. Businesses in turn seek funds for the development of their activities and both parties quickly find common ground on the basis of notes-recognitions of debt identical to those of the depositors. These recognitions of debts have an ephemeral life: they are destroyed as soon as the debt is released.

 Establishment of the monetary creation mechanism
Goldsmiths are quick to note that gold goes in and out but the level of stocks does not fall below a certain threshold. Statistically, not all borrowers present their debt acknowledgment at the same time. Hence the idea of ​​offering more IOUs than there is gold. The total amount on the issued IOUs is greater than the gold weight of the guarantee. There is a risk of being unable to cope with an influx of claims, but it is visibly measured as the system grows. That said, the model set up to replenish the post-Louis XIV period by John Law nevertheless showed in 1720 that a simultaneous request from all users is not just theory!

The monetary creation mechanism is born. When a trader borrows, he collects his notes printed by the silversmith. The sum is reported in the registers. Debt notes are issued, and the gold level in the coffers does not change. The merchant uses these notes-certificates to pay his suppliers, who will use them in turn to pay employees, who can themselves use them to buy bread and so on. The currency circulates, and all these exchanges have as their point of origin a simple writing in a register ...

The story is not over: when the trader repays his debt, the goldsmith destroys the debt recognition. Monetary creation and monetary destruction follow each other with a non-zero balance sheet: the merchant's activity increases and the goldsmith earns interest. The three attributes that define money since Aristotle are there: it is accepted, divisible and durable. Accepted, because the currency is guaranteed by the confidence that we have in the gold reserve. Divisible because it allows you to exchange work hours for bread, since all are measured in a common unit of account. Durable because the currency has a certain stability given to it by its reference to gold. The amount of money needed to buy bread is the same - at the rate of inflation - that one acquires this commodity at a given time or a year later.

State currency, central bank and commercial banks
This mechanism is now used by states. However, if at first the currency was actually based on a counterpart of precious metal, the shift to a value decreed arbitrarily by the state is now customary. The currency issued is called a fiduciary because it requires trust in the state. It is he who arbitrarily decrees his value. The euro, for example, is the equivalent of gold for goldsmiths. Their role is now held by the European Central Bank, which issues banknotes and coins in circulation. The state, for its part, enacts two rules: to refuse the national currency in settlement of a debt is illegal as well as to pay the tax with another currency. With such rules, acceptance is easier ...

Conventionally, in a state the central bank issues the national currency and applies the monetary policy of the government. For their part, commercial banks distribute the central bank's currency and manage services such as loans with bank money, that is to say whose movements are recorded in the accounts. A transfer of one hundred euros does not mean that one hundred euros in tickets are in a box, it's only a writing. Another entry will debit the account after a card payment.

Overall, the money supply is 95% created by commercial banks and 5% by central banks. The commercial bank is legally required to have a reserve of 1% of its outstanding amount in government currency at the central bank. Note that the money supply created by obtaining the credit and destroyed during the repayment covers the principal, but not the interest. These will have to be financed elsewhere, typically through new loans.

 And virtual currencies?
If bankroll money allows you at any time to require your bank the counterpart of writing in national currency physical, nothing of such is proposed with the virtual currency. The virtual currency only keeps the writings. By construction, only the scriptural aspect of money persists in the process - any transaction is indelibly inscribed - but its total independence from other currencies prevents it from relying on any value or currency. It is also said that there is no intrinsic value. The expression "virtual money" borders on the oxymoron.

Indeed, without intrinsic value none of the 1,300 virtual currencies meet the Aristotelian definition of money. Virtual currencies are certainly becoming better accepted, and we can not deny that they are divisible: they make it possible to measure the value of goods and to make comparisons. But they are not sustainable. Indeed, the currency allows to postpone a purchase for "later" at the best time. It is also necessary that "later" the purchasing power of this currency be of the same order. However, the definition of the virtual currency specifies that it does not rely on any element that would ensure its stability. That being said, to deny Aristotle and say that "Bitcoin is a currency" simplifies much the discussions ...

Where could the intrinsic value of the bitcoin volatile be if it had one? For my part, I see two tracks: fast cash transfers and ICOs (initial corner offering), which consist in proposing to participate in the financing of a project not by entering the capital or lending funds, but by pre-purchasing services that the project will propose. Ethereum no example offered ether, Uber could have offered races, Air France Miles. The investments, which are very interesting in the initial phase, can be exchanged later on the markets; these financial products are known as tokens.

A value dependent on emotionality
Ultimately, the price of bitcoin is driven entirely by supply and demand. A purchase is made by betting on the fact that "someone" will be willing to buy at a higher price. Would it be a kind of action? Not quite. An action is an act of ownership with voting rights that defines a value that virtual money does not have. Of a type of obligation? No more, because an obligation is a loan.

In the end, a virtual currency is without reference. There is no "reasonably" high or low value. Fluctuations follow the mood of the moment, emotions from craze to disappointment in unexpected movements, even surprising. His course is unpredictable. It is not because he is high that he will not rise even higher. But he can fall as well.

To say that it is a bubble is comfortable, but with eight thousand dollars in mid-November, we could predict a burst. Alas, it then took a new flight, and the doubling of the course in fifteen days. Unpredictable, bitcoin is a perfect product for fans of strong emotions and games. All because a virtual currency is not a debt ...