Why Bitcoin is the New Gold

By ,

Right now talk of bitcoin is everywhere. I can appreciate some may find it tiring.

The reason the conversation has merit however, has nothing to do with the surging price.

At least, it shouldn’t. The price is merely a consequence of the bitcoin architecture.

That is, the beauty is in the design of the system. The price is just an acknowledgment that the market can see the value.

Beauty is in the eye of the beholder, after all.

Digital Gold

Many would think that bitcoin is just digital money.

This isn’t necessarily wrong. However, I believe it was actually designed to be a digital gold. Which is a small but important difference.

Let’s step through why it was designed this way.

In 2008 ‘Satoshi’ defined an image of a new financial model.

This whitepaper is now legendary. It was titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’

The word ‘cash’ here is not lost on me. However the very nature of system is multi-faceted.

Bitcoin is a currency, but it is also an asset and a store of wealth.

This can be hard for people to get their head around, but is a very important advantage over fiat money.

Bitcoin versus Gold

The similarities are by design.

First, both bitcoin and gold have no central authority. They are not controlled by any government or authority. This is the central idea of the bitcoin architecture.

Second, anyone can recognise and test it. Admittedly this is done quite differently, but the principle is the same. Gold purity is tested by using nitric acid. Bitcoin authenticity is proven by solving mathematic problems. Once validated they are then placed publically on the blockchain (public ledger).

Third, anyone can mine them — resources permitting. It should not be missed that the term of validating bitcoin transaction is called ‘mining’. This is a clue in itself.

Mining gold is not limited to government or authorities. It is only limited by the ability to find it and the tools needed to extract it. And of course the license of the territory to breach the surface.

Bitcoin is the same, although instead of needing tools and licenses you just need specific software that solves the maths problems (cryptology).

Finally, the finite nature. This is without doubt the most important shared-principle.

Gold by virtue of being a natural resource is relatively finite. Conversely bitcoin is absolutely finite. Limited to 21million coins. This is itself ground-breaking.

The Satoshi Mystery

Prior to disappearing, Satoshi was very prevalent online in the early days of bitcoin.

His public posts were flawless in their punctuation, and the idea completely lucid. It appeared that he had every kink thought out before releasing his idea to the world.

Consider this post-quote from 18 February, 2009 (my emphasis added):

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.

Nick Szabo

One of the suspect’s central to the identity of Satoshi is American computer scientist Nick Szabo.

Szabo published an almost identical doctrine to the bitcoin whitepaper in 1998 titled “bit gold.”

This paper is a direct precursor to bitcoin architecture.

In fact it was even mentioned by Satoshi on July 20, 2010 in a public posting that bitcoin is an ‘implementation of the bit gold proposal.’

bitcoin price rise

Source: @TuurDemeester on Twitter

Szabo denies that he is the Satoshi, however is one of the most authoritative commentators in the community. His Twitter bio reads ‘Blockchain, cryptocurrency, and smart contracts pioneer’.

However, the identity of Satoshi is not ultimately that important. It’s the system that is of interest.

P2P Commerce

P2P commerce is basically a return to the bartering system, but in a digital space.

Because of this, it should be no surprise that the design of a P2P currency is based on the principles of gold.

Gold has after all had value in trade for over 6000 years.

Long before even the idea of paper money.

All parts of fiat money are based around having third party intermediaries that interfere with the transaction of money as a matter of ‘trust’.

Bitcoin, as with most cryptocurrencies, looks to do away with this system and trade directly between parties.

This is why it is known as a ‘trustless’ monetary system.

In the traditional sense of money transfer, we have had to rely on the ledger of the bank to be correct. Therefore it was a trust based system.

When the ledger is public (the blockchain) there is no need for a trusted third party to process the transaction.

Multifaceted Digital Asset

Bitcoin is a currency, an asset and a store of wealth.

It absolutely has the ability to function as a currency, and do everything that fiat money can. If it is accepted as a form of payment.

Gold is a reliable and apolitical monetary medium.

In times of financial uncertainty, Gold has been said to have the ability, due to its un-expandable supply, to be a much more reliable store of purchasing power than currency.

Bitcoin too may possess this quality, largely by implementing the principles of gold. However, by adapting them to the digital world, it may actually become more valuable than the physical commodity.

As Apple co-founder Steve Wozniak said recently, ‘bitcoin is better than gold.’

Gold gets mined and mined and mined,” Wozniak said. “Maybe there’s a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics.


Dion Dalton-Bridges,
Junior Analyst, Money Morning

PS: Want to find out more about the secret world of bitcoin? Click here.

About Dion Dalton-Bridges

Dion Dalton-Bridges is a junior analyst at Money Morning.

He has an academic grounding in business, having completed his bachelor at the Copenhagen Business School and Queensland University of Technology.

His primary focus is in digital assets including cryptocurrencies, as well as small market cap opportunities within the ASX.

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