Why Bitcoin is Better than Gold

By: Big Think

Bitcoin is a new digital currency that it's perhaps the best form of money that we have ever seen. It's important because most of us don't understand money very well, and perhaps the concept that is harder for us to understand about money is that money is and has always been a ledger. And people often ask, "What is money backed with?" And the truth is money is not backed with anything. It has never been backed with anything. The Euro is not backed with anything in particular, and neither is any other currency in the world.

Gold, for example for that matter, is not backed with anything either. Some people think that gold has value because we use it for jewelry, but it's actually the other way around. Gold is valued because it's very scarce, and because it's very scarce, it has been the best ledger that we've found in 5000 years. In Bitcoin, we have something that is as good a ledger as gold, meaning it's incredibly scarce. There will never be more than 21 million Bitcoin. It's even more scarce than gold. But in history, we have had this trade-off between things that have been a very, very good store of value, like gold for example. And things that have been good for payment like the Portuguese's Escudo, or the US Dollar, or American Airline Miles, or Facebook Credit, those things are better for payment but they're not so good as store of value, historically. And the things that are good for a store of value, like gold, are not good for payment.

In Bitcoin, we have something for the first time that is incredibly superior than anything we have seen before as a store of value, and also as a form of payment. It's hard to have a rigorous discussion about Bitcoin without understanding money, and the best way to understand money is to understand the history of money. Anthropologists agree that there is no tribe, much less a civilization, that ever based its commerce on barter. There is no evidence. Barter never happened. And that's counterintuitive to most of us because we are taught in school that we first barter and then we made money because barter was too complicated.

Well, barter never happened, and that's one of the key sort of myths about money. So then you would ask the anthropologist like, "Okay, so how did we do commerce before money if there was no barter?" There was no commerce. No, there was plenty of commerce. The way that commerce would happen is that, let's say, someone in our tribe had killed a big buffalo and I would go up to a person and say, "Hey, can I have a little bit of meat?" And that person would say no or yes, here's your meat. And then you would go up to that person and say, "Hey, can I have a little bit of meat?" And that person would say, "Yes, here's your meat." And basically we all had to keep track in our heads of what we owed other people or what other people owed us. And then someone would come to me and say, "Hey, Wences, can I have a little bit of firewood?" And I would say, "Sure, here's your firewood." And now I have to remember that I owe that person a little bit, that this person owes me a little. And we all went about our business with these ledgers in our minds of who owes us what and what do we owe whom. Very subjective system, often these debts didn't clear or clearing ways that were not satisfactory to both parties.

Until about 25,000 years ago, someone very, very intelligent came up with a new technology that really took off. Which came to me and said, "Hey, can I have a little bit of firewood?" And I said, "Sure, here's your firewood." And this person said, "This time we are going to try something different. Here's some beets for you." And I said, "I don't want beets, I don't care for beets, I don't need beets." He said, "It's not about that. We're going to use beets as the objective ledger of our tribe. Instead of each of us having to remember what we are owed, the beets are going to keep track for us-- an objective ledger to keep track of debts." And it was such a successful technology that it took off and in a couple thousand years, it become impossible to find a tribe or civilization that didn't have some form of objective ledger. In some cases it was wampum shells, in other places it was salt, in other places rocks or beets, but this form of keeping track of debts with an objective ledger took off.

And anthropologist go as far as saying that if you describe a tribe's environment in detail, they can predict what's going to emerge as an objective ledger, as money because it's always something that has six qualities. The most important of which is that it be scarce. And it makes sense because if it's not scarce, if we were to use tree leaves, for example, we could create debts that were owed to us out of thin air, and that wouldn't be good. That wouldn't be a good ledger, but also it has to be durable. If it's something that decays or corrodes, it doesn't store the information well, it has to be devisable, it has to be transportable, recognizable and will fund you. And this system really worked until about 5000 years ago when trade begun to extend a lot geographically and we began to trade with other tribes and different tribes using different ledgers, so they couldn't trade with each other.

And what happened then, about 5000 years ago, is that gold emerged as the first universal ledger to keep track of debts. It was gold because it was universally scarce, that was the most important consideration. But also it was very, very durable, fairly devisable, transportable, recognizable, and fund you. And that's why for 5000 years gold has been the best store of we have ever seen. It's incredible that today if you need to leave $5000 for someone, for your daughter, not your daughter or granddaughter, but some great-great-great-great-great-great-great-great granddaughter of yours, 40 generations from now, 900 years from now. We don't know how to do that. If you leave it in just dollars it's not going to be worth very much. We know of no security that will last that long. The only thing that we know can carry value for that long is you need to buy $5000 worth of gold, lock it in a vault, and give the key to that person 900 years from now.

And it's incredible that in the 21st century this is the best answer we have. This is why Bitcoin is so relevant, because it's the first time in 5000 years that we have something that is incredibly superior to gold in each one of the six characteristics. It's much more scarce than gold, there will never be more than 21 million Bitcoins, it's much more devisable than gold, each Bitcoin is composed of a million pieces called satoshis. It's much more durable, devisable, transportable. You know, I can have a Skype call from here New York to someone in Jakarta and I can see them in real time, and I can hear them, and they can see me and they can hear me. It's incredible the technological accomplishment of that. But if after hanging up I want to send them one cent to Jakarta, even though I have the cent in my pocket, and it would be trivial if they were here, we don't know how to do that. It's not possible in the 21st century to send the cent to Jakarta. One, because it will cost more than 50 cents to send it. Two, because it will take a week to get there. And three, because there are no systems to do that.

Bitcoin fixes that and makes it really easy to send that cent to Jakarta, or a million dollars to Jakarta. You can attach a Bitcoin to an SMS message or an e-mail and send it for free and in real time across the world. And it's incredibly easy to verify the second you get a Bitcoin. You know that it's a good Bitcoin so has all the qualities of a great ledger made in digital, and because of that it's probably the best form of money we've ever seen.