Bitcoin Is Demonetizing Gold
The same sound money principles which led to gold’s historical reserve status are contributing to bitcoin’s overtaking and erosion of its dominance.
Bitcoin Is Better At Being Gold Than Gold Is
Decentralized: Bitcoin is more decentralized than gold. There are over 100,000 nodes all over the world verifying the Bitcoin blockchain. Bitcoin miners and developers are all over the world as well. Gold mining is subject to the jurisdiction they are located in and the local government can easily impose controls over the gold output since it is physical in nature. The same cannot be easily said with bitcoin mining since bitcoin is digital and can be instantly secured from control or confiscation by third parties. Central banks and governments control the vast majority of the global gold supply. Gold needs a custodian, or third party, to transact globally. Gold requires trust. We know banks control the custodian game, and governments and banks are closely intertwined. Bitcoin fixes this drawback of centralization and demanding trust. Bitcoin transactions, clearance and final settlement do not need trust in a third party. It is a peer-to-peer monetary system.
Censorship and seizureship resistant: As a peer-to-peer network, bitcoin is more censorship and seizureship resistant than gold, because bitcoin does not need to rely on centralized third parties to be transacted among people or entities. Since gold, by nature, needs to rely on third parties to be transacted at scale, those transactions can be censored or seized. Historically, people in oppressive nations have had to leave and migrate to other countries with nothing because they were robbed or their very own country did not allow them to leave with any material possessions. Bitcoin has liberated millions of people all around the world and allowed them to freely move to other cities, states and nations with all their wealth by just memorizing their 12-word seed phrase, which allows them access to their bitcoin. Bitcoin is liberating. Bitcoin is freedom.
Secure: Bitcoin is more secure than gold. Again, gold relies on banks and custodians for security, which is costly. Bitcoin is secured by cryptography and encryption. The Bitcoin network is the most secure network in the world. If you take physical possession of your gold you can only put it in one place to store and secure it. If that one place is robbed, then you’ve lost your gold. The Bitcoin network allows you to create Bitcoin addresses that require multiple private key signatures in order for the bitcoin to be spent or moved to a different address. This means that you can store your private keys in various geographically dispersed locations. Therefore, if someone gets a hold of one of your private keys, they cannot move your bitcoin, because they will need all required private keys you designated in your quorum in order to move your bitcoin.
Gold transactions typically require third-party involvement, where security is questionable at times. The only time you would not need a third party when transacting with gold is if you are in person with the other party you are transacting with and you happen to have the exact amount of gold they are requesting. If you do not, it is pretty tough to shave off exact amounts of the proper weight of gold needed for a specific transaction. You would also then have to assay the gold to ensure it is truly gold and not painted shiny tungsten (or some other metal or material), which has always happened throughout history and continues to happen. Bitcoin transactions are the most secure transactions in the entire world. They are performed using SHA256, which is an NSA-developed cryptographic hashing function. Because bitcoin can be secured in such a strong and geographically dispersed manner, it cannot be easily seized or stolen like gold has been all throughout history.
Scarce: Bitcoin is infinitely more scarce than gold. One of the main reasons gold was the best form of money and store of value for thousands of years was because of its scarcity. Bitcoin’s supply is programmatically fixed; it is absolutely scarce. Gold is somewhat scarce. Gold’s current annual inflation rate is about 2%. Gold miners are constantly uncovering new gold mines on land and in the ocean. Also, there is an infinite amount of gold floating around in the universe. Several companies have already speculated that they will mine gold on nearby asteroids at some point in the not-so-distant future. If the price of gold goes up, then more miners mine gold because their reward is greater and, therefore, the global gold supply increases (diluting your share and gold holdings) more than it would have if the price did not rise. With bitcoin, this phenomenon cannot happen. When the bitcoin price rises, the issuance and mining rate stays the same; it actually reduces by 50% every four years. Bitcoin’s stock to flow ratio gets better every ten minutes, everyday.
What is the exact current supply of gold? No one knows. There are estimates out there, but we cannot know for sure. We just have to guess and trust what other people tell us. What is the exact current gold mining rate? We think it’s around 2% but it could be more, we cannot know for sure. What will be the gold supply next year? Or in 10 years? What will the mining rate be then? Impossible to know all of these factors with complete certainty. You just have to trust other third parties. There is zero transparency in the current or future gold supply and mining rate. With bitcoin, we know all that, verified independently. Bitcoin’s issuance rate and monetary policy are fully transparent and unchanging. Bitcoin is simply the better form of money and store of value.
Bitcoin has a hard-capped supply of 21 million bitcoin. Each bitcoin can be divided into 100 million smaller units called satoshis (sats), just like how a dollar bill can be divided into 100 smaller units called pennies — same concept. No central authority, no miner, no developer, not even the creator of Bitcoin, Satoshi Nakamoto, can create more bitcoin. It is hard-coded into the network. Bitcoin’s current annual inflation rate is around 1.7%. In 2024, it will be reduced by 50% down to 0.85%, and the same thing four years after that, until all the bitcoin has been mined. For reference, 18.7 million bitcoins have already been mined and are out in the world. So only 2.3 million are left to be mined and the last bitcoin won’t be mined until the year 2140. This means that bitcoin is the most scarce asset our world has ever seen.
Easily portable: Bitcoin can be transferred anywhere in the world in just a few minutes, without anyone or any entity stopping it. Bitcoin is sent today in many parts of the world via radio, satellite and mesh networks. None of those options require the internet. Again, gold, by nature, physically needs someone to transport it to other cities, states, countries, continents and so on. This is costly, time consuming and logistically challenging. Gold is physical, which hurts it as a useful form of money in today’s global, digital, 21st-century society. It is simply impractical to use. It is extremely heavy and costly to store it and secure it. It would take weeks to send gold to another country and it would cost a lot of money. You would also have to trust so many third parties in that process. Being non-tangible is a major feature of bitcoin, not a flaw. It allows it to not be bound by the physical world. Holding gold has continuous costs like storage, maintenance and security. You can hold, store and secure a billion dollars worth of bitcoin for the same cost of holding, storing and securing $1,000 worth of bitcoin. You cannot say the same with gold, because it is physically heavy. Transporting $10 worth of bitcoin is just as easy and costs the same as transporting $1,000,000,000 worth of bitcoin. Transporting those two different amounts in gold poses extremely different requirements and problems. Gold is nowhere near as salable across space as bitcoin is. Bitcoin solves all those drawbacks of gold. Bitcoin is highly salable across time and space.
Hard to create: Bitcoin is the hardest money humanity has ever had. Gold used to be the hardest money our world has ever had until bitcoin came along. It is extremely hard to create bitcoin which is a very good thing. You want to use money that is hard to create because that means that your hard work and your time won’t be so easily diluted away by the easy creation of more units of the money you earned from your labor. How many tens of trillions of dollars has our governments around the world printed in the last 12 months alone (2020–2021)? It is hard to keep track because they constantly print so much of it. Fiat currency is easy money, which makes it a bad form of money. It forces you to consume or invest constantly because if you do not, then your purchasing power drastically shrinks over time. That is why everything always gets more expensive, because central banks and governments always print more dollars — because they can and because it is so easy. They just click a button and voila: there is now $5 trillion more dollars in existence just like that! Bitcoin is the only money we can all trust because we can independently verify its supply, issuance and unchanging monetary policy. Bitcoin is the most fair, ethical and logical money we have.
Deflationary or disinflationary: Bitcoin is disinflationary which is good. This means that your bitcoin holdings will retain and even gain in value, or purchasing power, over time, because issuance is decreasing toward zero. Gold is inflationary because the supply is always increasing at around 2% every year, and again, the gold supply is infinite. The bitcoin supply is finite. This also means that bitcoin is more stable than gold. The 21 million hard-capped bitcoin supply is unchanging. Life gets cheaper over time when you are on a bitcoin standard.
Highly divisible: Bitcoin is highly divisible which is great for making micropayments if needed. Remember, one bitcoin can be divided into 100 million smaller units called satoshis, or sats. It is pretty tough to take your gold bar to the store and buy a cup of coffee with it. The cashier does not have the ability to shave off the exact amount needed to pay for the coffee. You also cannot take your gold bar and buy something online with it. Sure, we have gold coins, but again, they are highly localized. Gold coins do not work in our current global, digital society. Amazon cannot accept your gold coins in their one-click checkout via your mobile device. Again, we come to the issue of assaying the gold, verifying it is real gold. If the coins have some sort of stamp or are inscribed to portray authenticity, then that brings us back to the centralization aspect that a government or bank controls the money; they are the ones inscribing or stamping the gold coins for use. If you use their money, you are subject to their terms, conditions, decisions and monetary policy..
Borderless, global and permissionless: Bitcoin is borderless because it is decentralized. Bitcoin does not require governments or companies to verify or approve transactions, and governments couldn’t, even if they wanted to. Again, Bitcoin is a peer-to-peer network. Bitcoin is not bound by capital controls, sanctions, surveillance and other oversight. that governments impose.
If you send gold across the world to another country, your country and the receiving country could impose taxes, restrictions, capital controls and surveillance. on your gold and the transaction itself. You have no privacy in non-localized gold transactions. You have to trust way too much. With bitcoin, you can send it to anyone, anywhere in the world, within just a few minutes and no government or entity can stop it, control it or impose surveillance. You don’t need permission to hold your bitcoin or transact with your bitcoin. Bitcoin gives you freedom and self-sovereignty. It’s quite a beautiful thing.
Non-sovereign: Gold in its purest form can be non-sovereign but because of its physical nature, it needs to be centralized in order for it to be used as a standardized form of money globally, which is how we arrived at dollars in the first place. Paper notes are easier to carry around and transact with because banks could denominate the exact same piece of paper to be worth $1 or $100 for instance. The paper dollars were backed by gold at first. But in 1971, the United States went off the gold standard and all other countries as well (various timeframes). Now, fiat currencies are backed by nothing because governments wanted to print as much currency as they wanted. They are addicted to it and it only gets worse over time. We started by printing millions, then billions, and now we are printing tens of trillions of dollars. This is why gold has essentially always been “sovereign” to an extent, and again, the vast majority of the global gold supply is held by governments and central banks. Gold-backed currencies failed. They require too much trust. We have to trust that the banks are actually holding the amount of gold reserves they say they do. We have to trust they won’t debase the currency. Bitcoin is non-sovereign. No bank or government controls it and never can control it. Bitcoin’s monetary policy and supply cannot be manipulated by anyone or any government. Bitcoin is everywhere and it is nowhere.
Trustless: Bitcoin is trustless money. With gold, you have to hope and pray new massive gold mines are not uncovered tomorrow. You have to trust governments and banks to not suppress the gold price. You have to trust that governments won’t debase gold coins, which they always have throughout history. Gold coins would start out as 100% pure gold, and then the government wanted to create more money so they would mix other inferior metals with the gold coins or engage in coin clipping, and various other forms of debasement. Bitcoin cannot be debased. You have to trust third parties when transacting with gold. You have to trust that the gold is real, unless you have the highly specialized skills and equipment to test the authenticity of the alleged gold you are receiving. With bitcoin, you do not have to trust any government or third party when transacting. You could say you have to trust that miners will mine the next block of bitcoin transactions but that’s the same as saying, “Well, you have to trust that humans want to make money.” It’s a moot point. There are miners all over the world viciously competing for Bitcoin block rewards. This competition has only grown more fierce over time. You also don’t have to trust that miners aren’t going to uncover blocks tomorrow morning with millions of bitcoin in them. Bitcoin is trustless, which is how money should be. Bitcoin is all about trust minimization.
Highly liquid: Bitcoin is far more globally liquid than gold is. The bitcoin derivatives markets are growing exponentially larger each month that passes. Large institutions are buying billions of dollars worth of bitcoin without moving the market. Let’s say you have a gold bar and I have a bitcoin, who can trade it for something the fastest? Bitcoin has a 24/7/365 global market that is over a $1 trillion market cap. There are thousands of bitcoin exchanges worldwide that are accessible from anywhere in the world. You can trade your bitcoin for thousands of other currencies (fiat and crypto) instantly on your mobile device. With gold, you would have to physically go to a storefront that is probably only open Monday through Friday, 9 a.m. to 5 p.m., and have them trade your gold in for your local currency only.
Easily verifiable: Bitcoin is far more easily verifiable than gold is. Anyone in the world can easily and cheaply run a Bitcoin node, on a simple laptop, and instantly verify their own transactions and bitcoin holdings. There are hundreds of wallets that can verify your bitcoin as well, instantly. With gold, you have to have a specific set of skills and expensive equipment in order to truly verify the authenticity of your gold. Fake gold is uncovered all the time around the world because it is fairly easy to counterfeit.
Non-confiscatable: Bitcoin cannot be confiscated if you store it appropriately. If you send your bitcoin to your own address and memorize your 12-word seed phrase, then no one, no government, no entity, can ever take your bitcoin. It is literally impossible. However, gold on the other hand can be seized or confiscated, because it is physical. In fact, gold has been banned before and confiscated in 1934. This ties in with the section above explaining how bitcoin is more secure than gold. Bitcoin can be absolutely secured; gold cannot.
Utility: Some critics wrongfully say that bitcoin has no utility. They essentially say, “If I can’t touch it and use it to make something, then it must have no value and it must be fake!” Bitcoin’s utility and value comes from its characteristics of being decentralized, permissionless, global, immutable, scarce, fully auditable, instantly transferable, non-seizable and highly divisible. These things, and more, are bitcoin’s utility, which are extremely better than gold. Utility does not only refer to what you can physically build or use something for. Utility is anything that something is used for. Bitcoin is useful, valuable and used for dozens of different reasons by millions of different people all over the world in different situations. That is reality, even if goldbugs do not want to acknowledge it. Holding bitcoin does not destroy utility value like holding gold does. Bitcoin is just pure money, and nothing else, and that is an enormous benefit. Gold just sitting in a vault destroys its utility value as it cannot be used in industry, such as in jewelry, electronics, dentistry and more. Hoarding gold causes the price to increase dramatically and, therefore, does not allow the market to be able to use it as much as they otherwise would in those industries. This is not good for humanity because we are forced to settle for cheaper, inferior substitutes. Holding bitcoin does not destroy any utility value. In fact, hoarding bitcoin increases its utility value because all the use cases I mentioned above become even more valuable use cases as bitcoin’s purchasing power increases. Now that we have bitcoin, it is better for humanity that gold becomes an industrial metal only and ceases being a monetary metal.
Energy usage: Bitcoin uses far less energy in the aggregate compared to gold. As we established earlier, the vast majority of bitcoin has already been mined. Bitcoin mining is what requires a lot of energy usage, not bitcoin transactions. Gold mining on the other hand is increasing its energy usage over time, as more machinery is created to mine more gold and new methods are invented. Gold mining first started with a person using only an iron pickaxe. Now, there are enormous, industrial-sized machines used in gold mining which consume vast amounts of energy and create pollution in the process. Gold mining is one of the most destructive industries in the world for the global environment. It displaces communities, contaminates water, causes injury to workers and destroys pristine environments and ecosystems. Gold mining pollutes the air and surrounding environments with mercury and cyanide, endangering the health of people and ecosystems. Gold mining is getting worse over time for our Earth in terms of energy usage, pollution and destruction, while bitcoin mining is decreasing toward zero.
Bitcoin miners use mostly clean, renewable energy sources. Bitcoin mining does not need to occur near populated areas, meaning it is done in the most efficient parts of our world. Bitcoin is driving renewable energy research and development. A lot of bitcoin mining is conducted with excess or otherwise wasted and stranded energy, because they are monetarily incentivized to do so. Bitcoin mining companies are paying for hydroelectric plants and solar farms to produce more efficient, cheaper and safer energy. Bitcoin mining operations currently help reduce flare gas and capture that energy for their mining operations. Gas flaring is a major global environmental problem and bitcoin mining is actively helping to reduce those horrible and dangerous emissions. As stated earlier, bitcoin transactions hardly require any energy at all. However, gold transactions can require enormous amounts of energy and resources. When gold is transported from one location to another, or even when countries repatriate gold from other countries, enormous amounts of energy is required in those transactions.
Programmable: Bitcoin is programmable money. Since its inception in 2009, it has had numerous improvements to the protocol that have made the network stronger, faster, more secure, more private, more compatible and more efficient. Gold cannot be programmed to become better money. It is the same metal today that it was 5,000 years ago.
Fungible and uniform: Bitcoin is more fungible and uniform than gold. Every single bitcoin is 100% the exact same as all other bitcoins. And the same goes for satoshis. Gold, on the other hand, is much more complicated and nuanced. Gold in its pure bullion state is fungible, but there are all sorts of variations of gold in the world, post-mining. When gold is mined, it must be melted down and formed into something uniform or standard before it can even be effectively used as a monetary good. Then you ask yourself, is this piece of gold 100% pure gold, or is there some other metal or material mixed in with it? Does this piece of gold have the exact same shape, weight, purity, and so on that this other piece of gold has? Again, do you have those skills or specialized equipment to make that determination? You have to trust that, whoever made the gold bar or gold coin, made it purely of gold. Bitcoin solves gold’s fungibility problem.
Bitcoin was built to protect and store wealth across time and space. Bitcoin gives people so many more freedoms than gold does. Bitcoin is a technology that survives for the very same reason the wheel, knife, phone or any useful technology survives: It offers its users benefits from using it. Bitcoin is sound, pure free market money. Bitcoin is demonetizing gold.
Gold is old, antiquated and archaic. It’s the year 2021, it’s about time we stop using rocks as money or a store of value. It worked great for cavemen and non-digital societies. However, we are more advanced than that now. Upgrade your money.
If you fail to transcend conventional thinking at a time when conventional thinking is losing touch with reality, then you will be more likely to fall prey to an epidemic of disorientation that lies ahead. Disorientation breeds mistakes that could threaten your business, your investments, and your way of life. — “The Sovereign Individual” by James Dale Davidson and William Rees-Mogg
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This is a guest post by Roland Stautz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or BitcoinLinux.