For a medium of
exchange scarcity is essential: There have to be meaningful limits on its
supply (or on the growth in its supply) and it has to be impossible to spend
one and the same unit of the medium of exchange in more than one place
simultaneously.
In the case of a commodity
money such as gold these requirements are satisfied as a result of the physical
nature of the commodity: the potential supply of gold is limited by the total
amount of mined or mineable gold in existence and by the cost of mining gold;
moreover, if you give a gold coin to one person you cannot simultaneously give
it to another person.
In the case of
fiat money governments typically have a monopoly on its creation (although in
the exercise of this monopoly they partner with and/or can delegate some of
this creative power to central banks and commercial banks) so that everybody
else can't go around creating new units of the fiat money at will.
And the problem of double
spending is taken care of by either banks (if you use your bank account to pay
somebody the bank makes sure that you don't spend the same money somewhere else
at the same time) or the physical good itself (you can't give a coin or a bank
note to one person and to another person at the same time).
Bitcoins, on the other hand, are wholly virtual and immaterial. Moreover, the bitcoin network is maintained in a decentralized way. So how can bitcoins still be scarce and rivalrous goods?
Bitcoins, on the other hand, are wholly virtual and immaterial. Moreover, the bitcoin network is maintained in a decentralized way. So how can bitcoins still be scarce and rivalrous goods?