Rock, Paper, Bitcoin

A piece on money: gold, fiat and bitcoin.

According to economic theory, the characteristics of money are:

• durability
• portability
• divisibility
• uniformity
• limited supply
• acceptability

Gold

Gold has supreme durability, good uniformity, limited supply and reasonable acceptability.

The problems with gold are divisibility and portability. It is difficult to divide gold. You need specialised tools and certifications. Gold is very expensive for it's weight, so there are practical lower bounds on divisibility.

Transferring gold is cumbersome, expensive and, in certain jurisdictions or under certain governments, may expose the owner to civil penalties or confiscation.

These problems are fundamentally unsolvable. Gold is a dense precious metal, it is heavy and very physical. There is nothing that can improve the divisible or transportable of gold.

Paper

Fiat has ultimate acceptability, is highly divisible, uniform and, at least within the same nation state, easily portable.

The problem with fiat is durability and limited supply. Holding fiat for long term is problematic. Limited supply is something from the past, since the departure from the gold standard. Durability is irrelevant for fiat due to it's debasement.

These problems with fiat are only getting bigger.

Under modern monetary theory fiat has an unlimited supply. Holding fiat is like holding a melting ice cube, ever inflating the supply and destroying it's durability.

Bitcoin

Bitcoin is vastly superior on these characteristics.

Divisibility: For on-chain settlements the smallest transactional unit is currently valued at ~9 dollar cents. With second layer networks there is no upper or lower bound.

Portability: bitcoin is internet native. It is digital, so it can be sent from anywhere, to anywhere. It can be sent over internet, satellite, local mesh networks and with portable digital storage.

The digital payload is so small, a private key or a transaction can be transported using a printed QR code. A private key is so small it can even be memorised completely.

Durability: Securing bitcoin for long term storage is an alien and unfamiliar concept for most people new to bitcoin.

The ecosystem of storage solutions is growing quickly. Hardware wallets are getting stronger and simpler. Enterprise level secure storage services are maturing.

Disaster resistant backups are getting more commonplace. Multi signature wallets make geological and authorisational segregation possible, creating new possibilities for secure storage and corporate finance.

Limited supply: The exact supply of bitcoin is known, from the past, the present and into the future. The total supply and emissions of bitcoin is set in stone and no government branch, private corporation or individual can change this, not peacefully and not by force.

The problems of bitcoin are different in nature. The problems of bitcoin are uniformity and acceptability.

Uniformity will increase with improved privacy, made possible with technological developments on the base layer. These improvements will be leveraged by 2nd layer solutions, further improving privacy and uniformity.

Acceptability will grow over time. As it is still a new asset, it takes time to develop acceptability. This also will be improved by superior technology, which can hide most of the complexities of using bitcoin.

The next step

Contrary to the problems of fiat and gold, the problems of bitcoin get smaller over time. As bitcoin grows bigger the technology improves and uniformity and acceptability improve.

People will gravitate to the best form of money. Humans went from barter to shells, beads, rai stones, jewels, metals, precious metals, gold and finally fiat money. With every step, the properties of money were improving.

The next step in money will improve on those properties.

The next step is bitcoin.

Origin: https://twitter.com/mutatrum/status/1338510802681294852