Quote from: miscreanity on August 17, 2011, 02:24:21 PM

Quote from: becoin on August 17, 2011, 01:55:03 PM

This is a fallacy! How money supply becomes inadequate? Money is a measure not fuel for economic growth. By increasing money supply as economy grows you are in fact rewarding a group of participating parties with extra money they do not deserve. You are creating bubbles! Bubbles are much more disruptive than slower growth.

Anything can act as money. Money is simply an abstract concept that is applied to a representative item in order to make trade between differing products possible.

I cannot give someone oranges for his chicken eggs if he doesn't want oranges. A universally or at least widely-accepted medium must be used. Otherwise, a direct barter system is necessary.

As mentioned, anything would work to represent value; even ceramic cups. For simplicity, let's use dollars as they're familiar. When there are 10 dollars in an economy that has a hundred items for immediate trade, there are insufficient dollars to facilitate trade. Even if there were 100 dollars, that may not be enough because some items might be valued more highly than others. At least 100 dollars would be necessary to represent each item of value; more depending on negotiated value of the items.

Thus, there would be an increased demand for the medium of exchange, in our case dollars. If that demand is not met, the items will not be traded. This is one of the arguments used against gold as a currency, which does have some validity. Consider a situation where you might look to buy a pair of sandals. The sandals are $40 and you have a $50 bill. Should there be a shortage of currency, the business might not be able to provide you with the $10 in change you would expect after purchasing the $40 sandals with your $50. Would you be willing to take a $10 loss?

The store management might instead raise the price to $50. Eventually, that would displace values of other goods throughout the economy. Granted, it would be a slight displacement, but done with many items and by many participants, the aggregate changes add up and cause large-scale disruption. Then demand for the adopted currency increases.

It is a matter of convenience that drives the demand for a common currency. If it cannot be supplied sufficiently, trade will be put off until negotiated prices restabilize or alternatives are implemented, thus causing an overall slowdown in the interim. This has nothing to do with the economy itself, as that still retains its objective productive capacity. Instead, the economy's ability to function smoothly is hindered by lack of a fungible exchange method.

That's a good way of representing it. BitCoin is just a newer currency that makes some changes that are better to all but basically anything could be used as currency.