This article is part of a series that weighs up different ways of ascribing widely accepted value
Where does the value of gold come from? I do not really subscribe to the theory that it is valuable because all of us accept it. Because that does not really explain why all of us accept it. It was not airdropped onto us one magic day by Gods with the command to accept it as divine provenance. I also do not agree that it is valuable because it is one of the most widely traded and liquid commodities. Again active trading of a commodity only comes when it has acceptance beyond the trading market. Oil is traded widely because eventually it finds active use. A barrel of oil eventually finds conversion into energy which can be put to productive use that can be clearly measured in terms of its utility.
Coffee beans are traded widely because eventually someone will want to take ownership of them and consume them. Yes, I live in Melbourne, and I love coffee.
Unlike oil and coffee, gold is not destroyed as part of its consumption though. But given that it is hard to mine and supply is limited it is argued that it is valuable because it is scarce.
But that is not a good point either, there are a lot of things that are really hard to do and lead to production of items that are truly scarce. For eg: It is truly hard to convince my 2 year old to draw something that resembles a real drawing. And when he does create something it is quite scarce, each of his drawings is unique but it is only valuable to me. I am reasonably sure for others they are just dabs of crayon on paper.
Gold’s value comes from something far more simpler and primitive.
It is shiny!
We as humans love shiny objects, but it cannot be just shiny for even shards of glass are, it has to be durable and stand the test of nature and time.
Gold is one of the least reactive metals. It will withstand corrosion even if is left for thousands of years in salt water. Gold jewellery is attractive to people all over the world (and especially India) is because it is shiny and will preserve itself against the elements. For someone in a 3rd world country trying to preserve their wealth against inflation and corrupt government, it is common sense to buy gold. When everything around you is changing and decaying, gold withstands the test of time.
That is the real source of gold’s value. That in turn makes it readily acceptable by everyone, you can take a bar of gold to any country in the world and chances are you will find a taker who will swap something of equal value in return.
It makes an excellent store of value for one more primitive reason. Gold can be scrubbed of its history. You can in theory take stolen gold jewellery and melt it down to ingots and bars and sell it to someone else and no one would be able to trace its origins. That is not a bug, it is a feature. Even with cash, notes have numbers which could theoretically traced. Gold once melted is basically reborn, but it still commands the same value. For anyone looking to dodge the long arm of the law (just or otherwise) this is the killer app of gold.
Gold evokes in us something primeval. I live an hours drive to Ballarat which is old mining country, miners here talk about how finding gold and holding it in their hands is like having a jolt of electricity. Gold has been around for thousands of years as part of human civilization and will be around and accepted as a store of value till civilization survives. Chances are even if we hit an apocalyptic event and civilization collapses, men will still accept gold as a store of value and barter it for other goods. It is shiny! and survives the elements. It does not need electricity or the internet or any of the affordances of modern civilization. Even as cavemen we will be able to accept gold.
Heck even after Musk gets us to Mars, or better still we build and move to near earth O’Neill Cylinders, Gold will be accepted in these societies separated to earth even if we lost direct contact with earth. Humans anywhere in the universe will still want it.
Lets recap then some of the key reasons why we love and accept gold
1. Shiny, is attractive visually
2. Preserves itself physically against the elements
3. Can be untraceable source of bearer value
4. Can survive and be usable after the Zombie apocalypse
5. Can be used in O’Neill cylinders even if they have no direct contact to earth (we are not really going to settle on Mars, sorry Musk fans but Bezos has the better idea).
There are a lot of other reasons which have been widely discussed and debated by others. They in my opinion miss some of the more primal things and gloss over it by simply saying because it is accepted by everyone it is accepted by everyone. That is a circular logic and meaningless.
Now let’s get to the real point of this article. Is Bitcoin similar or comparable to gold? Lets benchmark it;
1. It is not shiny, bummer! There is no visual sensory aspect.
2. Activity in it is very transparent and traceable. Believe it or not, this works against it. Although there are ways to cover your tracks, a determined entity can trace the movements given the transparent public ledger.
3. Zero chance it survives the zombie apocalypse, no internet no electricity, no bitcoin.
4. I am not sure how meaningful decentralized consensus can be achieved across networks that are not going to be in contact with each other. One society on an O’Neill cylinder can resort to use a Bitcoin clone within their own closed environment but makes no sense to use the original Bitcoin from earth. Which means if you carried a cold wallet with Bitcoins to an O’Neill cylinder and it goes past Pluto your Bitcoin is basically a meaningless worthless number.
Bitcoins proponents often argue how it is the biggest, oldest most decentralized network with millions of users and the network effects will always keep it on top. I do not really buy that argument nor do I fully trust the numbers, they are widely manipulated by the exchanges. However even if we take that at face value, using that logic we should have all still be on mySpace. It is devastatingly simple for any self respecting social network to airdrop their own coin to their hundreds of millions of users and achiever larger distribution and network effects. Telegram, Facebook are doing exactly that. Bitcoins code is neither unique nor unreplicable. Heck its open source nature lends itselves perfectly to replication if so desired.
I am not trying to throw shade at bitcoin, quite to the contrary I am a big fan of it. It is after all the first and the most successful to date decentralized form of money. But it has several structural issues which make it meaningless as a medium of exchange and as a form of money. Once that became obvious Bitcoin shillers have been trying to pass it as some form of settlement layer or digital gold and often compare it favorably to gold itself.
I find these arguments really hard to comprehend.
Bitcoin is not gold, it is not even comparable or close to being anything like gold. Nor will it ever be. It has some other non gold like attributes that are attractive but they are not defensible in the long run.
It has some value as the first successful implementation of decentralized money and it might be attractive in the long run in a manner similar to how certain baseball cards are but that is about it.
Think of it as model T or one of the earliest versions of the motor car. They were great but eventually better cars came along.