This article follows the conventional practice of using the upper case Bitcoin to refer to the program or network and the lower case bitcoin to refer to the currency.

You crunch the numbers on your Bitcoin Profit Calculator , working out just how much that bitcoin is worth in the national currency in which you find yourself operating. How easy though it is for the creeping doubt to sneak into your thoughts: is actually real money? It would be strange if the thought didn’t cross your mind.

After all, many veterans of the long standing feud between the defenders of fiat currency and their rivals promoting precious metals have gone on record as dismissing bitcoin out of hand. Their reasons of course are different.

Fiat currency defenders simply give no respect to any alleged money which isn’t backed by a government. Without such backing, they consider it just a joke. More sophisticated versions of the case likely cite the relevance of network-effect – not without some validity.

While having some current, practical merit, though, those arguments, I suspect are the death rattle of a dying currency. After all, experience of the last hundred years has demonstrated that having a government (and a government alone) as the backing to money is a recipe for monetary decrepitude, not to mention systemic theft, through inflation.

On the matter of fiat currency, bitcoin enthusiasts doubtlessly side with precious metal fans. Fiat decreed value is the last-call of a currency. As I explained in an article at the Fiat Currency Review site, real money originates in and maintains strength only via market processes privileging it as a demanded commodity. Only such commodity backing has any hope of withstanding government’s inflationary corruption.

Whether sea shells, cattle, tobacco, salt or gold, money becomes money, in the first instance, because it is a commodity that enough people want that it can be used as a general medium of exchange or store of value. If though we concede that point (thoroughly as it pulls out the rug from under the feet of the fiat currency crowd), does it then leave bitcoin condemned by the arguments of precious metal promoters?

Gold bugs are perfectly correct in their insistence that money must be backed by a real commodity. Where they go wrong is presuming that bitcoin lacks just such a backing.

Bitcoin is as much a commodity-money as gold or silver today and cattle or cowry shells in the past. The illusion that bitcoin is just abstract numbers, rendered in pixels, misses the point.

It has to be understood that bitcoin as a currency is a product of Bitcoin technology – software and hardware – which is constituted through the networked work of what are, somewhat misleadingly, called the miners. It is these miners who audit and secure the Bitcoin system, by means of solving advanced mathematical equations. Thereby, Bitcoin (and thereby bitcoin) is literally the miners‘ math calculations.

And the one inescapable fact, obvious to anyone who has been following events pertinent to mining, is the extraordinary amount of electricity that is consumed in the process. As the great economist Julian Simon taught us, when prices are high in any resource, incentives drive people to innovate less expressive options.

In the long run, the costs of Bitcoin mining will likely come down. It seems difficult to imagine though bitcoin existing in the absence of electricity. The electrical system is Bitcoin’s condition of possibility.

Indeed, electricity may be the single most important commodity in our world. It’s only real rival is fossil fuel and it seems likely that hundreds of years from now, when fossil fuel has become too expensive for most of its current uses – whether generated by windmills, nuclear or hydro power plants, or some means not yet invented – there will be electricity.

Put in that light, then, we can see that the excavating, smelting and molding of aurous compounds into the coins and bars that constitute the commodity-backed money called gold is not any more money than the generating, conducting and programming of electricity into the mathematical calculations that produce B/bitcoin. Bitcoin no less than gold is backed by mining a natural resource from the world. That is, and always has been, real money.

When you need to know the top information on all the best insights into Bitcoin and cryptocurrencies, check us out at the Bitcoin Profit Calculator site. If you’re interested in currency issues, Wallace Eddington’s recent article on the Pros and Cons (and Con Jobs) of fractional reserve banking is must-reading.