The government could cryptographically prove that the Bitcoin backing digital dollars actually exists and is securely held, instead of relying on Americans’ faith that hunks of gold exist in a basement somewhere. Despite its youth, Bitcoin is poised to be as believable a money as gold and dollars are. Let’s compare gold, the metal, with unbacked paper dollars. Troves of Bitcoin, unlike gold, can’t be randomly found under the ground, debasing our currency in a way that nobody controls. Gold actually works the same way. NOTE 2023-09-04: I wrote this article before hearing of the existence of a book with the same title. Well, I haven’t read the book, but I assume it to be an independent invention of the same idea as this article. But gold is not perfect in this sense, because it can be mined just the same. Sure it can be used for jewelry and industry, but so can diamonds and copper.
You’ve heard the argument by fans of the gold standard that fiat currency isn’t backed by anything; it’s just paper that they can print arbitrarily. Printing fiat lowers the spending value of individual notes and causes inflation, for a time. So do we want our money’s value to fluctuate based on stochastic geological processes? Or do we want it to fluctuate based on the whims of a central bank or treasury? The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. The root problem with conventional currency is all the trust that’s required to make it work. Backing a CBDC with Bitcoin also solves the problems that make Bitcoin a poor medium of exchange. The only conclusion is that Satoshi’s motivation was to make the world a better place, and nothing else. Since both gold and fiat are belief-based monies, is one better than the other?
Better base your paper on a mineral. What makes fiat more than just pieces of paper is the belief that it will have value in the future. Not by a long shot: gold is still bought and sold at a value much higher than what it should be based on its use in industry. Backing currency with gold was one decent solution, but still subject to the aforementioned Gold Rush problem. Gold is still traded as a belief-based money, and so will Bitcoin, after CBDCs are created and adopted. If we live in a free society, the government’s CBDC will be backed by bitcoin, and not by belief in the government. The fact is, it doesn’t have to be backed by anything except this belief. It’s gold’s millennia-long history of use as money, which induces the belief that it will continue to be valued as money into the future. It seems as though governments are starting to realize that their current un-backed system of money is in danger, and so is the racket currently run by payment processors.
Neither system is inflation-proof. What makes gold a good store of value is that it can’t be easily printed by central banks or treasuries. Central Bank Digital Currencies (CBDCs) are cryptocurrencies created and endorsed by national central banks and treasuries. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. What makes gold money and copper a metal? I strongly disagree with this notion, and point to the fact that fiat currency has not made gold obsolete. Gold is a bad medium of exchange and fiat (more readily subject to inflation) is a bad store of value. Bitcoin is the original, non-scammy, most believed-in cryptocurrency, and is an excellent store of value even if it’s not a good medium of exchange. What makes currency a good medium of exchange is that it is lightweight and easy to spend. Since the third is arguably a subset of the first, I will only consider the first two for now. In the early days, he mined 1 million Bitcoins which have never been spent, despite now being worth more than $10 billion.
