There’s gold in them thair fort
Currencies are based on a scarce and desirable commodity, and as such, can be traded for any goods and services. Where does this leave Bitcoin – what is the commodity it uses? Why would anyone want it?
Your currency options at the moment are:
- Gold and silver – the global supply of these is limited by mining and the effects of hoarding. Everyone wants gold and silver that they can hoard it.
- Gold backed national currencies – one upon a time, the dollars in circulation were worth all the gold in Fort Knox. If you wanted the gold, having a dollar was just as good.
- Unbacked national currencies – the scarcity of these currencies is artificially created by the reserve bank and the creative efforts of the mint. The desirability of an unbacked national currency is that it is required to perform meaningful commerce within the country, and other means of exchange are prohibited.
- Private currencies: if you trust your bank or crime boss, sure.
- Weird mathematical currencies: Bitcoin.
Unfortunately, much as gold is the real deal, it takes some skill to check its authenticity – a nice dense titanium/osmium mix coated with real gold is relatively cheap, but pretty expensive to distinguish from the real real thing without trying to bend it (titanium is too hard). For practical reasons, it is simpler to trade in something representing the thing than in the thing itself.
That leads us to gold backed currencies, but there’s a problem there too. The United States scuttled the gold standard when they defaulted on the loans they had run up for the 2nd world war. Instead of repaying the loans in real money (as promised in writing), they invented currency devaluation, and repaid the loans in what we have now as the US Dollar. Ever since then they have been printing the things, without adding significantly to the gold in Fort Knox. (Which brings us to the 2013 fiscal crisis.)
And this brings us to Bitcoin. The supply of Bitcoin is limited by ever-increasingly complex mathematical problems. What is the limited commodity that it supplies? It is the answer to a complex mathematical question. However, do you want the answer to this complex mathematical question? No. Now that’s a problem.
There is something though, which Bitcoin promises, which gold and national currencies do not:
- truth – the truth about the amount of currency in circulation.
- freedom – freedom from artificial manipulation. Governments do not print Bitcoin. They cannot, because it is hard.
So, do you trust mathematics and your computer more than you trust your government? You shouldn’t. Which do you prefer? Random thefts by clever hackers that have their long fingers in your computer, or systematic and organised appropriation of everything that is yours by government? Governments should be more trustworthy than random hackers and complex algorithms. Sadly, this is still an open question.
To ฿ or not to ฿. That is the question.
A word of advice:
Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.
(Actually ฿ is the symbol for the Thai Bhat.)
