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Bitcoin, Debt And Elasticity: A Rebuttal To Michael Green

In the same way that a year passes through a series of seasons, so too does Bitcoin appear to follow a seasonal trajectory during each halving cycle. 

As we enter Bitcoin Spring, price discovery and growth within this industry will begin to accelerate as Bitcoin begins to draw more interest from people outside of the community. However, growth within the industry is not the only growth to be had. In the same way that the flowers of springtime must contend with weeds, so too must Bitcoiners contend with new rounds of FUD. 

The latest individual of merit to publicly weigh in on Bitcoin is Logica Chief Strategist Michael Green. Green is a wealth of knowledge in the macro sphere and his interviews are always worth a listen, even if you don’t agree with him. That being said, I have a few points of contention with him because I believe he is speaking about Bitcoin from a position of bad faith and not a position of someone who generally wishes to learn and understand.

To begin with, he styles himself as open minded and has said time and again that it is important to listen and understand ideas with which you don’t agree. For example, he will be interviewing, or perhaps has already interviewed, Rohan Grey, which means that the merits of Modern Monetary Theory (MMT) will also be entertained. That is all good and well, however, it also appears clear that the same level of consistency on Green’s part will not be extended to the Bitcoin space. 

This is evidenced by his use of cliche and banal pejoratives to describe bitcoin such as: Bitcoin is a fake system, Bitcoin is trapped in a lie, Bitcoin is a Ponzi, “bit con,” or comparing Bitcoin to Bernie Madoff. And yet, none of these claims are supported by any evidence on his part. Based on the many hours I have spent listening to podcasts of his, I think he would agree that making disparaging remarks prior to presenting evidence is a dangerous path to tread on.

I am not sure whether Green is wading into the space as a form of self-advertisement (his follower count has increased significantly since he began talking about Bitcoin), to protect the current system (himself?) or because he genuinely thinks there is something wrong with Bitcoin.  His true intentions, whatever they may be, are immaterial to this discussion.  

This article is not being written to attack Green’s character but is instead being used to refute some of the claims he made on the “Money MBA Podcast.” The list of his claims against Bitcoin that we will address include the following: money exists to extinguish debt, the inelasticity of Bitcoin is a problem, and Bitcoin disincentivizes risk taking. I would also like to add that, while you read this, it is important to keep in mind that these claims work off of Green’s position that we shouldn’t abandon the current system. This is the same system that Green benefits from despite an increasing number of participants falling by the wayside. One might go on to surmise that there is a hint of self interest behind his positions. 

Nevertheless, the important principle here is that we must always be ready to meet challenges coming from outside of the space, which is the purpose of this article. Before we respond to the claims against Bitcoin, we must first challenge Green’s claim about the nature of money itself.

Money Exists To Extinguish Debt

The first point that needs to be addressed is the claim that “money is that which extinguishes debt.” This claim is demonstrably false. The primary reason that money came about was to solve the double coincidence of wants problem. An explanation and example of the double coincidence of wants problem is provided by Vijay Boyapati:

“In the earliest human societies, trade between groups of people occurred through barter. The incredible inefficiencies inherent to barter trade drastically limited the scale and geographical scope at which trade could occur. A major disadvantage with barter based trade is the double coincidence of wants problem. An apple grower may desire trade with a fisherman, for example, but if the fisherman does not desire apples at the same moment, the trade will not take place.”

Money solved this problem by creating a mechanism by which both goods from the example could be priced in a third. This pricing mechanism provided the lubricant that allowed the size and scope of trade to expand. By finding a salable good that all other goods can be priced in, ancient man stumbled upon one of the most important technological innovations, arguably, of all time. Since taking on debt in the first place was rare in ancient times, then how could money, which has been widely adopted and used going back as far as we can decipher, have existed solely for the purpose of extinguishing debt? The answer is clear: Money did not exist to extinguish debt but was instead used to facilitate trade.

Although debt financing has evolved in size and scope over time, it has always existed within the context of a system which used the scarcest goods as money, whether those were bronze, copper, silver or gold. One might be correct in saying the U.S. dollar exists to extinguish debt, but only because we have operated solely under a debt-based monetary system since 1971. Under this system, the bank simply conjures up an asset (dollars) from thin air and loans it into existence, perhaps in the form of a mortgage or car loan. Historically speaking, this is the exception and not the rule. A hard money system has allowed for debt financing as far back as records exist. The only difference is that some form of collateral, usually land, had to be pledged in order for a loan of hard money to be obtained so that the creditor was protected in the case of the borrower’s default.

Debt-based money was used in the 1800s and to great detriment. The onset of numerous banking panics during this century was the direct result of banks increasing the money supply via unbacked banknotes. The way this works is banks would create more banknotes (which are actually just the receipts you would have received after depositing gold at the bank) than they had gold in their vaults, in effect loaning banknotes into existence.

My last comment under this topic that I would like to make is that during his interview with the “Money MBA Podcast, Green cited the character Wimpy from “Popeye” in order to make his point that money exists to extinguish debt. It must be noted, however, that in the case of Wimpy, he does not have money to begin with and is thus looking for an extension of credit, so I am not exactly sure what Green was driving at there. An extension of credit and money are two separate things. One is an IOU, while the other is not. If Wimpy ever had money, no debt would enter the equation because a straight swap of hamburgers for money would have occured. Money is produced, and behaves, no differently than any other good in an economy and is not debt in and of itself.

Now that we have addressed some key misconceptions about the nature and role of money itself, we are ready to move forward and address some of Green’s arguments against Bitcoin itself.

The Bitcoin Money Supply Is Inelastic and Cannot Expand

The next claim made by Green against Bitcoin is that the money supply of Bitcoin is inelastic and therefore cannot expand, which would be detrimental to the economy. His belief appears to be that the elasticity of money is necessary for growth in a modern economy, despite history indicating to the contrary. To counter his claim, we will need to analyze time periods characterized by both elastic and inelastic money and then focus on the effect that each type of money had on the economic environment.

Periods Of Elastic Money

After the fall of the Roman Republic, and subsequent rise of the Roman Empire, debasement of coins began shortly thereafter with the size and frequency of debasements increasing over time. By the year 241 A.D., the denarius had been diluted to just 48 percent of its original silver content and then, by 274 A.D., contained a meager 5 percent of said silver content. It should come as no surprise that debasement of Roman coins coincided with the decline and collapse of the empire itself. 

The collapse of the western part of the Roman Empire led to a period of time called the Dark Ages, which was a time of economic and political weakness in Europe that lasted for centuries. This entire post-Empire period suffered from the rampant debasement of coins, however, it must be noted that the shorts periods of relief came once inelastic money was introduced, such as Charlamagne’s denier or the Byzantine and Arab gold coins. These short periods marked by the use of inelastic money were also periods of economic growth in an otherwise low-growth era.

In China, paper money had been used to varying degrees, beginning in the 7th century, and was initially backed by copper. As with the evolution of any paper money, its lifecycle passed along these four key phases:

1. A banknote is provided as a receipt for deposits of copper

2. Due to the lightweight nature of the banknote, the banknotes themselves begin to be used as a proxy for money

3. Governments/bankers then begin to issue more banknotes than they have precious metal in the vault

4. Inflation follows which leads to a collapse of the paper currency

In the case of China, the final collapse occurred in 1368, while under the Mongol-led Yuan Dynasty, after a period of high inflation.

During the 18th century, France experienced one of history’s most well documented bubbles followed by one of history’s greatest periods of hyperinflation near the end of the century. The Mississippi Bubble occurred in the 1710s and was fueled by the excess creation of bank notes on top of gold deposits, which were then used to buy shares in the Mississippi Company. The inflation of the money supply led to a bubble which subsequently burst, leading to riots. John Law, head of Banque Royale, was eventually forced to flee under cover of night, with his own personal real assets staying behind in an effort to make creditors whole. At the end of the century, during the 1790s, the French had yet to learn their lesson and the assignat was born out of the madness of the French Revolution. 

The assignat was made legal tender and allegedly derived its value from the church lands that had been confiscated by the revolutionaries. Suffice to say, land itself is not a good form of money as it lacks the attributes of portability and divisibility. As is always the case, the value of the assignat, like the paper money experiments that preceded it, was destroyed due to over-issuance. This over-issuance fueled even more chaos, during an already tumultuous time, until Napoleon took control in a coup and restored the country to a more inelastic money (gold).

The Bretton Woods system, established in 1944, was by no means a good system but it at least anchored the dollar to a resource, gold, that mimicked the scarcity of the Earth’s resources.  Prior to the Bretton Woods system, the world had witnessed the destruction of German paper money during the Weimar hyperinflation and after the Bretton Woods system was abolished, the world has seen the destruction of paper currencies such as the Brazilian cruzeiro, Zimbabwean dollar and Venezuelan bolívar. In fact, an individual on Reddit was kind enough to make an infographic of all the elastic currencies throughout history that have been inflated away, many occuring in the 20th century.

Today, countries such as Argentina, Brazil, Turkey and many others watch helplessly as the purchasing power of their elastic currencies is destroyed. Perhaps it should come as no surprise that those are three of the countries that have seen significant growth within the Bitcoin ecosystem.

On an anecdotal note, I have watched a close friend in Brazil benefit enormously from having owned bitcoin while the Brazilian real has continued to depreciate. In fact, though his family’s business has come under difficult times, the family’s allocation to bitcoin has helped them weather the storm while others in their same situation aren’t so lucky. Friends of his who have no interest in the topic of money have since joined in as well and benefitted accordingly.

Lastly, I would like to provide some evidence as to what happens under an elastic money regime courtesy of Pew Research. In 1970, one year before Nixon closed the gold convertibility window, we had the following shares of U.S. aggregate household income by income tier: upper income (29 percent), middle income (62 percent) and lower income (10 percent). 

By 2018, those percentages had changed to record the following: upper income (48 percent), middle income (43 percent) and lower income (9 percent). What this illustrates is that periods of elastic money have a tendency to exacerbate wealth inequality to a significant degree. There are also additional sources of information that substantiate this point, but the key takeaway here is that elasticity of the money supply leads to debasement and debasement is ultimately theft, or in the case above, a transfer of wealth from the poor to the wealthy.

Periods Of Inelastic Money

History has shown that periods of inelastic money were superior to periods of elastic money, whether it was the gold aureus issued by Caesar, the gold solidus used in Byzantium, the florin or ducat of northern Italy, these functioned as early European reserve currencies, or the money used during the time of the international gold standard, beginning in 1871. 

All of the aforementioned periods were some of the most productive periods in human history. From the Renaissance to the Industrial Revolution, the inelasticity of money was the key feature that allowed immense amounts of growth to transpire. The inelasticity of money is important because we operate in a world of scarcity where the goods used as money must mimic this finite nature. Resources such as land, gold, oil, timber and water are finite, so pricing them in an infinite good does not make much sense, philosophically speaking. Furthermore, resources must be expended in order to extract other resources or produce goods. Bitcoin adheres to both of these laws of nature due to its scarcity as well as the need to expend resources to produce it while fiat money does not.

Bitcoin Disincentivizes Risk Taking

The last claim that we will cover in this article is the claim that Bitcoin disincentivizes risk taking. 

As financial markets have evolved, there has been a corresponding proliferation of debt instruments as well. The majority of these developments in debt markets occurred under a hard money system, so the argument that Bitcoin disincentivizes risk taking, ostensibly due to its high value, is false. 

Even though debt wasn’t as common during ancient Greek or Roman times, purchases of land and sea voyages were sometimes financed through debt. Typically, a precious metal was loaned out to the borrower and in exchange the borrower would pledge security, in the form of the land being purchased or even in the form of the sea vessel being used for the voyage itself. Therefore, risk taking was present even under an ancient, hard money system. 

In late medieval times, Florentine banks saw fit to risk a loan to the English king, Edward III, during the Hundred Years’ War. These bankers were ultimately bankrupted when Edward defaulted but nonetheless, this is another example of credit being issued in the form of a hard money good (likely the highly-valued florin, in this case) and risk being taken. The point of these examples is to show that risk taking has only increased with time and that the loans denominated in highly-valued money were not impediments to commerce.

Loans in general are repaid through careful investments into efficiency-creating technology which frees up capital, allowing repayment of the loan. For example, in the latter decades of the 19th century, John D. Rockefellers’ Standard Oil was able to reduce the prices on its petroleum-based products to one-eighth of their original price. 

This cost efficiency would have no doubt enabled Standard Oil to repay any of its outstanding creditors with ease. It is also no surprise that this efficiency occurred under the inelastic international gold standard previously mentioned. Much to the contrary, debt today is often rolled over and never repaid under our current elastic monetary regime. The mere fact that debt continues to expand should tip people off that the current system is untenable. It is also worth noting that if people would prefer to save in bitcoin rather than lending it out, then perhaps their risk assessment of the economic environment is one where alternatives to holding bitcoin are poor by comparison. This has nothing to do with the monetary unit itself, but with the economy.

Lastly, Green made a comment that those unable to pay their debts were thrown into debtors’ prison, often for indefinite periods of time, according to him. The first thing that needs to be noted is that unpaid debts are a form of theft by the borrower. When people engage in theft of resources under any other circumstance, it is a criminal offence and often leads to prison time.  Should debt be treated differently? If so, how? If anything, the risk for the creditor of not being made whole, in the event of the borrowers default, would be a perfect example of a circumstance that would disincentivize risk taking, rendering the monetary good being lent out as immaterial in this case. In the case of Bitcoin, despite the nascency of the technology, there are already opportunities for lending and borrowing, for example by opening an account through BlockFi, so the claim that Bitcoin disincentivizes risk taking is false.

Conclusion

Over the duration of the podcast, Green went on to make additional comments such as “Bitcoin is unfair,” but as with most of his claims, he did not go through much trouble to explain himself, so the ultimate thinking behind them is unknown to the listener. Additionally, he referred to the stock-to-flow model as “nonsense” but provided no evidence to support that claim either. As someone who enjoys listening to Green outside of Bitcoin, I expected much more. His audiences have a tendency to fawn over him, so it comes as no surprise that his claims were left unchallenged.

As far as providing a solution to the monetary mess we find ourselves in, his response was simply to “vote better.” Again, I expected far more. A quote often ascribed to Einstein provides the best response to Mike’s solution:

“The definition of insanity is doing the same thing over and over again and expecting a different result.”  

There is no need to open a tangential discussion on the topic of democracy within the context of this article, but it is enough to say that if democracy worked so well, then why do places like Argentina, Brazil and Kenya find themselves in a consistent state of dysfunction?

In closing, people struggle with paradigm shifts and understandably so, however, it is my perception that Green is not acting in good faith in these debates, perhaps because Bitcoin does not comport with his worldview or perhaps because he is salty for having missed the boat when the opportunity arose. 

Whatever the case, his use of statist rhetoric to attack Bitcoin undermines any constructive analysis he might otherwise lend to the space. Perhaps Bitcoin threatens his business model, much like Peter Schiff’s, though it is difficult to say. Conjecture aside, I do want to be clear about one thing: Bitcoin critiques are always welcome, but please, do your homework first or at least approach the subject with an open mind. Ultimately, any critiques, whether substantive or not, will only serve to strengthen Bitcoin in the long run.

This is a guest post by Kent Polkinghorne. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The post Bitcoin, Debt And Elasticity: A Rebuttal To Michael Green appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Pass The Baton Already: Why Bitcoin Is Poised To Replace Gold

There is a constant war of ideas being fought between gold bugs, like Peter Schiff, and supporters of bitcoin. In order to accurately compare and contrast gold and bitcoin, we will need to weigh each asset against the various attributes that make a given form of money good money. We will also need to dive into monetary history in order to understand what happens when the prevailing money during a given point in time is confronted by superior money.  

The topics we will be covering in this article include the following: the history of money, stock-to-flow ratio, shipping and transaction costs, storage costs, censorship resistance, settlement time, efficacy of a blockchain versus a clearing house and the ease of validating the underlying asset. 

Some additional items of historical relevance to our topic will also be used to support our findings. These items include Executive Order 6102 as well as the costs paid by Madrid to Moscow in order to transport gold from Spain to Russia during the Spanish Civil War. Finally, we will estimate the hypothetical cost for Venezuela to repatriate its gold from England based on the historical precedent indicated above. This final point will tie together some of the various difficulties of transacting in gold at scale.  

But first, we need to cover two key monetary principles: Gresham’s law and Thier’s law.

Gresham’s Law

Gresham’s law is named after Thomas Gresham. Gresham was an English merchant and financier under the House of Tudor during the 16th Century. Gresham’s law states, in short, that “bad money drives out good money.” 

His observation appears to stem from a period of English history known as The Great Debasement (1544 to 1551). Henry VIII had sought to increase revenue for the Crown and began a process of removing the gold and silver content of the coins that were in circulation. This process inevitably led to the hoarding of coins with the higher gold and silver content while the coins with the lower gold and silver content were spent into circulation. This process caused problems in the economy and led to a lack of confidence in the monarchy itself.

Eventually, trading partners from neighboring countries refused to accept English money and the policy was reversed altogether by Elizabeth I around the year 1560. The important point here is that the coins with the higher gold and silver content disappeared from circulation and only the debased coins were used for buying and selling, thereby causing problems with exchange, until sound money was restored. In essence, people valued the coins that contained the higher percentage of scarce metals to the coins that did not.

One key factor to keep in mind here is that the coins being debased were required by law to be used due to English legal tender laws. This factor will come into play when we discuss Thier’s law next.

Thier’s Law

Gresham’s Law is important because it gave way to something known as Thier’s law. The main difference between Gresham’s law and Thier’s law is that Gresham’s law references a situation where citizens are forced to use a given money due to legal tender laws whereas Thier’s law applies to an environment where alternative forms of money are available to compete against the domestic money. 

An example of the application of Thier’s law would include the Weimar hyperinflation of 1923 where the German mark lost so much value that people would no longer accept it in exchange for goods and services. Argentina also provides a decent example in recent times because the U.S. dollar is heavily used and accepted there due to the continual debasement of the peso. Argentinians prefer to accept dollars when the option presents itself.

Now that we understand how Thier’s law is applied, we will next observe what happens when Thier’s law is applied to a phase shift. For purposes of this article, a phase shift signifies the replacement of a longstanding form of money with a superior form, as we will see in the case of silver in 19th century India.

Thier’s Law In 19th Century India

A gold standard occurs when a large number of countries adopt a standard economic unit of account that is based on a fixed quantity of gold. This type of monetary arrangement makes the process of settling international accounts much more efficient due to the removal of the foreign exchange layer. 

By the end of the 19th Century, many of the major world powers, such as England, Canada, Germany, Japan and the United States were on a gold standard. Despite this arrangement, nations like China and India remained on a silver standard. We will use the case of India to illustrate the deleterious effects of remaining on a silver standard (in effect using softer money) in the face of a switch to gold (harder money).

During the latter stages of the 19th Century the ratio of gold to silver increased in gold’s favor which meant that an increasingly larger quantity of silver was required to purchase the same amount of gold. 

During this time, India was part of the British Empire and was required to pay regular expenditures, called “home charges,” to England. These home charges were essentially like a modern tax. As a consequence of the declining value of silver relative to gold, the cost of these regular expenditures to England, due to England being on a gold standard, continued to increase, which required higher amounts of taxation in India. This increased taxation led to social unrest and, by 1898, India had essentially been forced to abandon silver altogether in favor of the gold standard, since gold would have been the only money accepted after a point.  This provides us with yet another example of Thier’s law.

Another point worth mentioning is that during this time, India was on a silver standard and it was being exploited by foreign speculators who were selling gold for silver in their own countries and then repurchasing gold in India at a significant discount. For example, if one unit of gold trades for 15 units of silver in England, but only eight units of silver in India, an arbitrage opportunity for profit exists. In England, 15 units of silver would be purchased in exchange for one unit of gold and then transported to India where it would be sold for one and seven-eighth units of gold. A speculator could repeat this process until all the gold was removed from circulation within the Indian economy.

What Does Thier’s Law Have To Do With Bitcoin?

In our example above, we observed how the less abundant commodity, gold, managed to exploit the more abundant commodity, silver. Due to Thier’s law, gold eventually became the only money accepted in India, which is probably why we can easily observe the appreciation for gold that Indians have today. The relative abundance of silver compared to that of gold made gold more valuable in the international marketplace during the 19th century.

One of the main properties of good money is scarcity. Plan B has managed to quantify the relationships between gold, silver and bitcoin through his stock-to-flow model. Understanding these relationships allow us to better forecast which form of money will eventually be dominant. 

Stock to flow measures the relationship between the stock of an asset (in the case of gold, the amount that has already been mined) with the corresponding yearly increases in supply of that asset (quantity of annual production). The higher the stock-to-flow ratio for a given asset, the more difficult it is to increase the supply of that asset. 

Currently, the stock-to-flow ratios for silver, gold and bitcoin are as follows: 33.3 for silver, 58.3 for gold and 56 for bitcoin. However, an important aspect of these figures must be kept in mind. Silver and gold have very stable stock to flow ratios, but the ratio for bitcoin increases significantly every four years due to the Halving event, where the annual production is reduced by half. As a result, the stock-to-flow ratio for bitcoin is set to increase to roughly 113 after the 2024 halving, essentially doubling that of gold.

So, how does Thier’s law apply here moving forward? 

Using historical precedent, we can observe that silver replaced more abundant metals, such as copper and iron, as money in places like ancient Rome… and then was itself replaced by the less abundant gold in the 19th century. During these phase transitions, the less abundant asset would likely have been demanded for payment of goods and services while the more abundant asset would be rejected until use of the more abundant asset ceased altogether in favor of the less abundant.  

Our forecast is that bitcoin will replace gold as money at some point in the not-so-distant future as the global reserve asset based on this historic precedent provided above. We are also aware that gold has already been demonetized in favor of paper, and now, digital currency. However, experiments with paper money are nothing new (see medieval China for an example) and digital money is merely an extension of paper money.  

Thier’s law applies through space and time and eventually people will stop accepting bad money in favor of good money, such as bitcoin. We already see this next phase transition occurring in places like Venezuela and Argentina today.

Scarcity is not the only facet where bitcoin is superior to gold, however. As we will see next, bitcoin tends to perform better than gold with respect to many of the other attributes that make a given money good money.

Additional Criteria For Comparison

Now that we have defined Gresham’s law and provided historical examples of its application, we will now move on to compare and contrast gold and bitcoin based on some additional criteria. These additional criteria will be used to complete our analysis.

Shipping/Transaction Costs

For shipping smaller amounts, but by no means small amounts in terms of value, 100 ounces of gold will be used as our benchmark. One hundred ounces of gold can be shipped for roughly $315. The comparable dollar value in bitcoin could be sent for roughly $8 using a SegWit address.

For shipping larger amounts, such as remittances between sovereigns, we will need to use the only modern example we have. During the Spanish Civil War in 1936, Spain transported 400 tons of gold to Moscow and the Soviets charged the Spaniards a 3.3 percent fee. If we use that 3.3 percent fee for our example, it would cost an estimated $32,997,989 to transport $1 billion in gold today. 

By comparison, a $1 billion bitcoin transaction moved for $690 in 2019, far below our estimate for a comparable gold transaction. In fact, another $1 billion transaction was completed just recently, at the beginning of November.

From our analysis above, we can conclude that it is much cheaper to transfer bitcoin between parties than it would be for gold.

Storage Costs

For storage of smaller amounts, 100 ounces of gold would require $451 per year to custody while the equivalent value of bitcoin, in dollar terms, could be stored for the cost of a Ledger Nano S at $59.99.

For storage of larger amounts, $1 billion in gold would cost $2,900,000 per year, while the Ledger Nano S would still suffice in this case for bitcoin. However, if one would like some form of custodial service for their bitcoin due to the large value, Casa offers its most comprehensive plan for $420 per month.

Censorship Factor

Gold must pass through a third party whenever it is shipped, whether being shipped domestically or internationally. Transporting large quantities of gold on your own is also a liability due to potential theft. Gold will typically have to be declared when crossing international borders and a customs duty may also be imposed. 

The key takeaway is that the gatekeepers (customs, in this case) can halt movement of gold, thus making transactions outside of a given jurisdiction difficult. During a recent confiscation in India, $46,000 of gold was seized despite the smugglers hiding it in their rectums.

Settlement Time

Shipping gold based on 100 ounces takes anywhere from three to 10 days, while bitcoin transactions clear in roughly 10 minutes depending on network congestion and fee size.

Historic Confiscation

Franklin Roosevelt confiscated and debased the paper value of gold in 1933 with Executive Order 6102. Since gold is physical in nature and value dense, it is often stored in custodial vaults like banks which essentially act as a honeypot for rapacious governments. The lack of a physical nature benefits bitcoin by comparison and the ability to confiscate it is thus far more difficult.

Blockchain vs. Clearing House

Payments in gold historically passed through a third party (clearing house) in order to be validated. Even today, gold must be tested and verified in order to determine not only its purity but if it is even gold at all. Conversely, bitcoin transactions can be self-validated through the use of a node.

Key Takeaways

Bitcoin is vastly superior to gold in terms of cost, speed and censorship resistance. One could theoretically carry around an enormous sum of bitcoin on a storage device the size of a pen drive, while the equivalent dollar value of gold would require a wheelbarrow, the latter putting an enormous target on the back of the transporter. With the exception of the stock-to-flow ratio (which will flip in bitcoin’s favor soon), bitcoin is superior to gold by all metrics covered. Historical precedent also favors bitcoin to overtake gold as the soundest money.

The information provided above can be used as a tool for the bitcoin community to combat some of the silly rhetoric coming from goldbugs such as Schiff and James Rickards. I would like to make it clear, however, that I am not against gold and think that it performed its monetary role well in a technologically-inferior era. 

However, I ultimately think that bitcoin performs the functions of money better than gold does in the current environment. We must always remember that money is itself a technology and thus prime for disruption.

This is a guest post by Kent Polkinghorne. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The post Pass The Baton Already: Why Bitcoin Is Poised To Replace Gold appeared first on Bitcoin Magazine.

Source: Bitcoin magazine