Gold is Better Than Bitcoin (Part 2)
Gold fixes this.
“O Gold! I still prefer thee unto paper, Which makes bank credit like a bark of vapour.”
– Lord Byron
In my previous post, I debunked Bitcoiners’ arguments against gold. Bitcoin’s alleged benefits are of little consequence, and indeed it will face problems in the future such as KYC legislation, which will make it mandatory to show ID to access the internet. The globalists will control all online access, limiting Bitcoin’s usefulness.
Gold is a better monetary asset because it is universally accepted and has had 5,000 years of history to prove its worth. It is offline and foolproof, and even a sub-Saharan villager understands its value and is willing to trade for it. In a word, gold is the very definition of money.
Because of its nature, gold has steered the rise and fall of empires. Its history reveals why it is considered money; a civilization which refuses to respect gold is cursed to collapse. This is best seen in Ancient Rome.
Spectres of Rome
At its peak, the Roman empire was one of the largest in the ancient world, stretching from Britain in the north to Egypt in the south, and from modern-day Portugal in the west to present-day Iraq in the east. The Roman army had 375,000 men, a large size in an empire with only 65 million people. Rome also relied upon thousands of bureaucrats and tax collectors to maintain daily operations.
Behind this impressive array of power was sound money. Rome’s official currency comprised the aureus, a solid gold coin, and the denarius, a coin minted from pure silver. When a Roman soldier received his annual pay of 75 denarii, he knew that he could save the money, and it would retain its value over time. Merchants could rely on Roman price stability, making the denarius prized in global trade — archaeologists have even found Roman coins in India.
Yet Roman emperors lusted for more wealth and power and used monetary magic to attain it. Although the denarius began its life as 100% pure silver, by the time of Marcus Aurelius (161 AD), it had been debased to 75%. By using less silver, the imperial mint could issue more coins — the ancient equivalent of money printing. This allowed the emperor to tax his subjects, clip off the silver, and distribute new coins with less silver content, thereby impoverishing taxpayers while enriching the emperor.
Subsequent rulers continued the debasement, thus causing inflation. Coins minted under Philip the Arab (244 AD) were only 45% silver, and by 265 AD, a denarius had only 0.5% silver content. As more coins circulated in Roman marketplaces, inflation reached an all-time high of 15,000% in the third century. Economic rules do not change; prices rise when the money supply goes up.
Roman subjects reacted by hoarding the still-valuable golden aureus, while getting rid of their worthless denarii — a phenomenon known as Gresham’s law, whereby bad currency drives out good money from circulation. This in itself demonstrates gold’s advantage; Roman subjects hid their gold away from the emperor’s prying eyes. Precious metals in self-custody are free from government influence.
In 301, the emperor Diocletian split the empire in half and tried to stem the runaway inflation. A price ceiling was imposed on every good from wheat to exotic imports; for example, it was illegal to charge more than 150,000 denarii for a lion! Instead of realizing the source of the problem in the empire’s own currency degradation, Diocletian blamed profiteers and speculators for steep prices. He also started to mint copper coins and further debase the denarius.
The western Roman empire collapsed in 476 AD as barbarians plundered and pillaged it. Historians locate Rome’s demise partly in its failure to adhere to sound economic principles. Debasing a currency prevents people from saving it, and causes them to switch from long-term planning to short-term thinking. When an empire’s citizens worry about inflation, they lack the energy to conquer and innovate.
A Byzantine Gold Standard
As a superpower falls, challengers arise vying for supremacy, and a new empire is established on the basis of sound money. This new empire quickly becomes dominant.
That is what happened to Rome: the western empire collapsed while the eastern empire, under the new emperor Constantine, grew in might and wealth. With its centre at Byzantium, the eastern Romans (Byzantines) established a new monetary policy in 312 AD: the 100% gold solidus, which became its official currency.
No empire in history has had the splendour and learning of the Byzantines’, which lasted for 1,000 years and produced men of superior wisdom and honour: Basil the Great, Paul of Aegina, and Belisarius among them. Byzantine architecture, science, and literature was advanced, and its military was formidable. Without the Byzantines, the Renaissance and Age of Exploration would have been impossible.
However, after a while the Byzantines also fell for the temptations of greed and easy money. In the 1200s, they started mixing their gold coins with copper. The solidus’s gold content dwindled to 50% by the 14th century, and by the time their capital Constantinople was besieged in 1453, Byzantine currency was completely copper.
The Byzantine empire soon fell, and was conquered by the upstart Ottomans under Mehmet II, who minted a new coin: the sultani, of solid gold. The Ottomans also circulated pure silver coins known as akçe, keen to avoid the errors of the Byzantines.
The Ottoman empire lasted for six centuries, boosted by sensible economic policies. Its fall, like that of most other civilizations in history, was presaged by debasement of its coinage.
Golden Days
At this point, the alert reader should surmise two lessons from history:
Gold is needed for a thriving civilization. Once a nation abandons precious metals as the basis of its money, then it is doomed.
When two empires compete for supremacy, the one with better money is likely to win.
The reason for this is simple: gold’s value does not change dramatically. If gold is used as money, then people can trade and save without worrying about currency fluctuations. Thus, long-term economic planning becomes more important than short-term risks. A soldier paid in gold is happier than one paid in copper or paper bank notes.
This can be seen in modern times with the British empire, which operated under a gold standard from 1717 to 1931. The empire reached its peak in 1919, after which it started to print money, hence crippling its monetary stability and generating inflation. Although it ran on fumes for a few years after abandoning gold, the empire fell in 1956 following the Suez Crisis.
We always return to gold after we attempt other monetary innovations. In extreme cases, this return to gold means the collapse of empires and civilizations.
Of course, gold is necessary for civilization, but it is not sufficient. A thriving culture requires good morals, family cohesion, and brilliant men to survive. Gold and, to a lesser extent silver, form just another pillar.
Bitcoin
Bitcoin (BTC), unlike gold, has no history behind it. It was invented in 2008 by a random internet anon using the pseudonym ‘Satoshi Nakomoto.’ Some claim that it is a Deep State creation. Others like Neoliberal Feudalism suggest that Bitcoin and crypto are manipulated by giants like Tether. Regardless, 15 years is a weak foundation upon which to establish a new monetary regime.
Bitcoin’s adoption has also been poor. Less than one percent of the world uses it, despite the Bitcoin bros’ best promotion efforts. Properly holding Bitcoin also requires a cold storage wallet, which most retail investors lack the time and patience to learn about. The typical person thinks that logging onto Coinbase and ‘buying’ Bitcoin means they actually own it.
In general, Bitcoiners overestimate the average person’s intelligence. Unless a significant percentage of the population adopts Bitcoin in cold storage, it will forever remain a speculative asset — and the libertarian philosophy behind Bitcoin is increasingly undermined as governments police people’s ability to purchase it anonymously.
Gold, by contrast, requires no internet connection or even background knowledge. Because of its history, malleability, and durability, everyone understands its importance. I have travelled extensively, and notice that even illiterate peasants in the Third World know gold’s worth.
To be sure, Bitcoin’s price has risen dramatically over a decade, due to it being the first asset on a decentralized blockchain. It has first-mover advantage. Its hodlers are true believers, and with missionary fervour bring the good news of Bitcoin to all peoples.
As I wrote in Part 1, I am happy for those who became wealthy through their BTC investments. However, net return is irrelevant when it comes to justifying a monetary asset. The core features must be stability and adoption.
Bitcoin is of course better than fiat currency due to its limited supply cap and decentralized nature. However, it is inferior to gold purely on the basis of history. It is also much more volatile than gold when traded in markets. It is possible that I am wrong and that Bitcoin will supplant gold, but for the reasons articulated here, I have my doubts.
Conclusion
Bitcoin is man-made. Anything created by men can be manipulated and corrupted. Gold is created by God. Gold is therefore fundamentally good, despite Fallen Creation. Its use can be attested to in ancient documents, and its value scarcely changes over long time horizons. It is honest money which has driven the rise of empires.
Gold is indestructible, cannot be created in a lab, and has been used for thousands of years. A civilization that fails to responsibly adopt it is doomed to failure. While understanding its limitations, we cannot help but conclude that the world will ultimately return to using sound money: which will be gold, not Bitcoin.
Akshually, gold is created by colliding neutron stars, as best as we're able to tell. Which might as well be God because it is quite outside our ability to smash neutron stars together.
Also akshually, it is possible to create gold in the lab - first time this was done was in 1941, by firing neutrons at Hg to knock off a proton; it's also possible to add a proton to Pt by a similar process. It costs a hell of a lot more to do that than it does to mine it, though, so nuclear physics hasn't quite discovered the philosopher's stone.
Solid argument, by the way. Very difficult to disagree with. The follow-up would be, how do we return to using precious metals, and can this be done in such a fashion as to make debasement very difficult while preserving ease of transaction?
You forgot about Bitcoins halving cycle every 4 years…. Whether or not people believe in Bitcoin, the daily new supply gets cut in half in 2024, 2028 etc. Which means if the demand for it as an asset stays the same, the only thing that can move is the price. Traditionally halving cycles start huge bull runs of 10-20x. Without even wild speculation or any other reasoning, Bitcoin should roughly double in price when the active liquid supply is halved.
If your money doubles approximately every 4 years in the most conservative case - what other asset can compete with that? That’s also assuming no further increase in adoption.
Bitcoin is complicated and does assume too much intelligence of the average person… but steadily doubling peoples wealth will be hard to reason against.