Opinion: Bitcoin is Gold 2.0

Since the inception of bitcoin eleven years ago, many have speculated on its value, and its purpose. Both aspects may in fact be related to one another. Many notable figures such as the Winklevoss Twins and Anthony Pompliano have declared that bitcoin is gold 2.0 on numerous occasions. Why exactly are experts drawing this conclusion? To answer this question, we must look at the properties of money, and how they stack up against what bitcoin is offering. The opinion of this piece is that bitcoin is gold 2.0. In order to properly present this side of the argument, it is only reasonable to acknowledge the shortcomings of bitcoin.

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Gold is Nothing like Bitcoin

Gold objectively exists in the “real world”, it is something you can touch, hold, and even use in electronics. The precious metal is an excellent conductor of electricity, and does not decay over time. The history of gold is old as recorded history. It has been used as money, and as the object of desire for kings, queens, and conquerors. Gold has been used as the reserve currency for empires and superpower countries such as the United States. Gold can be sent, received, melted down and reshaped time and time again for many purposes. It was here, and inside the earth long before humans dug it up, and it will return back to its domicile long after we’re gone.

Gold does not require electricity, or computers to maintain the location, or balance that you carry. When gold is lost, due to a ship being sunk it can be recovered. If you look at it from this perspective, gold is nothing like bitcoin. So why do cryptocurrency and bitcoin maximalists so persistently stick to this narrative? For those who are uninformed, it may seem like an investment tactic. Calling something gold 2.0 is a great way of catching the attention of millennials, 90% of which prefer crypto to gold.

Fundamentals of Money

One of the lenses in which bitcoin maximalists view bitcoin, is as a better form of money. In order to understand this, you must understand what makes money, money. Money is a store of value, a unit of account, and a medium of exchange. Without money, we would be forced to arbitrarily equate some amount of my apples, with some amount of your cattle. Trading is infinitely more simple, if we have a middle exchange medium that we both agree to use. That last part is actually extremely important. If I want to use USD, and you only accept EUR, then we are unable to trade with one another. The more universally accepted a money is, the better that money is. You are able to use that money in more places, with more people.

What is strange, is that the more useless the money is, the better that money is. If we take paper bills for example, the only thing they are good for, is being money. We can’t use the paper money for anything else, except maybe for burning to keep warm. Furthermore, what we use as money should not be able to be forged, or counterfeited. This act will devalue the rest of money in existence. If one were to engage in counterfeiting, this benefits the individual, but spoils the entire system for everyone else. This is known in economics as the Tragedy of the Commons.

Bitcoin as a Better Gold

We are now free to explore why bitcoin is gold 2.0. Yes, gold and bitcoin are fundamentally different, with one existing in cyberspace, and the other firmly planted in “reality”. The argument for bitcoin as gold 2.0, comes from bitcoin improving on the shortcomings of gold. In some ways, bitcoin mimics the properties of gold, such as the finite supply. Gold however, is only artificially finite, as we can now create gold in a laboratory, and eventually mine it from asteroids. Bitcoin on the other hand, has a finite cap of 21 million bitcoin, and that is final. There is nothing in the world that can change this fact, and this is a cornerstone of the argument for bitcoin as gold 2.0.

Bitcoin as well as other cryptocurrencies are highly divisible, creating more flexibility for spending and widespread adoption. This fact helps establish bitcoin as a medium of exchange. At a certain point, it gets downright difficult to cut gold into ever smaller pieces. With the help of computers, we can divide units of bitcoin into hundreds of millions of pieces called satoshi.

Bitcoin has made massive improvements on transferability. Bitcoin has made it possible to transfer value over large distances in a fraction of the time it previously took to send units of value. The peer to peer nature of bitcoin lets people transact directly with one another, adding another crucial feature to bitcoin, censorship resistance. These features are what underpins bitcoin as gold 2.0. A modern, internet based money should have all of the useful economic properties of gold, combined with the flexibility and utility of the internet. 

The Maturity of Bitcoin

The elephant in the room is the volatility of bitcoin. A good money is a store of value, and a unit of account. How can anything be called money, if it is as notoriously volatile as bitcoin? Bitcoin is in its infancy, as a technology, and as money. If bitcoin is truly gold 2.0, then the implications of this fact cannot be understood in the first eleven years of its existence. What it will do to the world of finance will play out over decades. The bitcoin experiment is now safely in the category of being a macro economic trend.

The aspects that I believe impact its volatility are the bitcoin inflation rate, and the breadth of adoption. The volatility will decrease as more people use it as money, and less as a speculative asset. My prediction is that bitcoin will eventually be the stable internet based currency it was meant to be. In conclusion, opinion is that bitcoin is gold 2.0, and will take its place as an internet currency. World governments, and their economies continue to crumble under the weight of overspending, runaway debt, and inflation. The people who are inheriting the future (millennials), will adopt a freely owned and operated, internet based currency.