In this series on Bitcoin and money, Crypto Briefing takes a deep dive into the complexities of the modern monetary system and how Bitcoin, as the ultimate hard money, can serve as a solution to many of its problems.

In Part Two of the series we examine the classic comparison between Bitcoin and gold.

The full nine-part series will beavailable here.

In the first part of our series onBitcoin and money, we examined the evolution of money and discovered that throughout history, society consistently returns to real money following cycles of monetary experimentation with currencies.

The most trusted form of real money has been found over the centuries in the form of gold; a metal that does not corrode, is naturally scarce, and succeeds in meeting all the needs of real money, being a medium of exchange and a unit of account, as well as being portable, durable, divisible, and fungible.

Because gold enjoys all of these attributes, it needs no approval from any authority for it to be recognized as being worth something. This, of course, is precisely why it really is worth something. The key quality of gold that made it such an excellent economic standard is its freedom to have value regardless of what authorities decide it should be worth. Gold has always been able to find its own value via the free market and thus has remained sound money through the ages.

Historically, the requirement to remain on a gold standard successfully restrained spending due to the natural scarcity of the metal, much to the chagrin of economists likeKeynesand numerous other parties who instead proposed unfettered spending behavior in hopes of stimulating the economy.

The gold standards system of monetary restraint endured throughout much of Europe and the United States from the mid-1800s until the 1930s, when it wasabandonedas the world went to war, encouraging a huge spending influx that a gold standard, had it remained, would have rendered impossible.

Essentially, the gold standard meant that a nations currency was worth a price relative to gold, which had to be held in reserve in equivalent proportions to the given currency. So if the United States set the price of an ounce of gold at $500,for example, each dollar would be equivalent to 1/500th of an ounce of gold. This meant that a country could not simply print their way to spending money since they had to have an equivalent quantity of gold in reserve. Taxes would instead have to be levied to raise necessary funds, which wouldnt go over so well if the citizenry felt the taxes were spent on wasteful activities.

Of course, this really put a damper on the ability to spend beyond the means of a nations budget, which is a big part of why the standard was abandoned.

The enormous monetary paradigm shift away from the gold standard to fiat currencies allowed for massively greater spending on wars and perpetual deficit spending for government programs. Since this pivotal change in global economic policy, countries now rely strictly on fiat currency and its relative value as decreed by governing powers, along with numerous meetings and manipulative tools designed to keep currencies somewhat in balance relative to each other.

To this day, gold is still held in reserveby many countries, despite the lack of a gold standard. So even though countries do not adhere to a gold standard, they remain aware of its obvious value and necessity for maintaining some sort of economic safety net for the worlds economies.

Is Bitcoin really a better store of value than gold?

During a recent gold spike, a huge amount of money was infused into the trusty yellow metal. The price of gold climbed just a few percent, but this seemingly small advance required more money to enter the gold market than the collective value of the entire crypto market.

So while Bitcoin might enjoy fantastic rallies of its own, mathematically, more money gets movedinto goldthan Bitcoin during a rally by a long shot due to its much largermarket capitalization.

Spot gold just broke through $1,400. Buckle up!

Peter Schiff (@PeterSchiff)June 21, 2019

Gold is a huge market, holding around 8 trillion dollars in value globally. Tons of people trust their money to be stored safely in gold, more so than just about any other asset. So what makes crypto believers think Bitcoin could possibly compete as a better store of value?

First, lets consider a few problems with gold, beginning with a big one:fake gold.

Gold has been faked on a number of occasions, and it isnt easy to spot a fake either. Tungstenfakeshave put a serious dent in the trustworthiness of long-respected gold mints such as the Royal Canadian Mint. William Rentz, a professor and expert on the topic of equity and investments, points out the greater implications of the discovery of fake gold wafers, A currency counterfeiter doesnt make just one fake $50 bill, he said. They make a whole lot of them. So I would suspect this might just be the tip of the iceberg.

Fakecertificatesof gold might also sow seeds of doubt, as was the case with a Japanese national, who was charged with economic sabotage in the Philippines after being caught with fake dollar gold certificates worth $19.6 million. This created some concern, as explained in this particular case, Fake foreign treasury notes undermine, weaken or render into disrepute the economic system of the Republic of the Philippines.

Of course, certificates like these were never designed for public circulation and were strictly used forlarge settlementsbetween government bodies, like the Federal Reserve and the Treasury Department in America.

Due to its immutable design and digital nature, Bitcoin avoids the pitfalls of counterfeiting. While a new Bitcoin user might be duped into accepting a fork of Bitcoin, anyone with rudimentary knowledge of the currency and how it is transacted would easily be able to distinguish between a true Bitcoin transaction and an imitation.

Although it can be forked, creating variations of the real asset, Bitcoin can not be counterfeited. The original BTC can immediately be recognized as unique from other cryptocurrencies, even cleverly named ones likeBitcoin 2, for example.

Unlike gold, Bitcoin is completely portable and can be stored anywhere, even inyour memory, using a mnemonic recovery phrase. Ideally, ones Bitcoin assets would be stored in cold storage such as in a hardware wallet, but the currency can also be stored for everyday use in hot wallets on mobile devices that allow for frequent and immediate transactions to anyone in the world, regardless of locale.

The same certainly can not be said for gold. Imagine bringing a bar of gold across the border into another country. Picture the border guards reaction when you tell them youre carrying thousands of dollars worth of gold with you. It is even less feasible to use gold for any sort of online or long-distance transaction, whereas Bitcoin knows no such bounds.

Gold has historically been held in storage by certain nations on behalf of others. In some cases, nations have come forward to collect the gold owed to them, ordering it be shipped back to its homeland. Before the gold standard was entirely abandoned and nations could still cash in their U.S. dollars for gold in American reserves, Charles de Gaulle famously made the historic dollar to gold swap, beginning to convert American cash for goldin 1958. In 1965, he sent the French navy to pick up $150 million worth of gold and returned hard money to Frances monetary reserves.

In some cases, however, it is not as easy as sending a fleet of ships over to pick up tons of gold. Venezuela currently has a large fortune of gold sitting in the custody ofthe U.K. Nicolas Maduro, a president who has struggled immensely with a failing economy due to mismanagement and a bevy of international sanctions, has been unsuccessful in his attempts to repatriate over half a billion dollars worth of gold from the Bank of England.

Bitcoin, on the other hand, has no such custody problem. While it could theoretically be stored and held against the will of another individual, company, or country if the user were to make some sort of error or fall victim tosocial engineering hacks, a Bitcoin user can maintain custody simply by holding the private keys to their assets.

This is not to mention the problem of shipping vastly expensive quantities of gold. Moving gold from one country to another for the purposes of settlement carries an enormous cost, even just for the security detail needed to protect the gold on its slow and cumbersome journey. Bitcoin, on the other hand, is transacted in minutes for a nominal amount, usually of a few dollars or less,no matter the quantity.

Goldcan be, and has been, confiscated by governments.The Emergency Banking Act of 1933forced all Americans to hand over their gold and to instead hold U.S. dollars, which were subsequently devalued by decree under the Roosevelt administration. President Herbert Hoover had previouslystated, We have gold because we cannot trust governments, but this precautionary measure, practiced by many citizens, proved insufficient for the protection of the wealth of Americans.

Bitcoin is not so easy to confiscate, being stored simply with a series of 12 words in ones memory, offline in cold storage, or on personal devices such as mobile phones.

Bitcoin is provably scarce, with a maximum of around 21 million BTC to ever be mined, as prescribed by thehalving scheduleof the protocol. The halving of block rewards is scheduled to take place every four years, or more precisely, every 210,000 blocks, resulting in diminishing returns on mining efforts over time.

We dont know, nor can we ever know, just how much gold there really is available to the global market. Unlike gold, no hidden Bitcoin veins buried miles underground will ever be discovered to saturate the market, resulting in devaluation. No asteroids are flying around in space withquadrillions of dollarsin bitcoins stored away in them, just waiting for future generations to mine them.

While gold technically meets the definition of a medium of exchange, it has its limitations in real-world use. By and large, even during the era of the gold standard, it was used formonetary settlementsbetween nations, not for everyday transactions.

Even now, as gold continues to increase in value, using it to transact value is highly impractical, if not comical.

Can you imagine walking into a store with a bar or certificate of gold to buy something? Can you order any merchandise online anywhere with a bar of gold? Would you even want to?

Bitcoin, unlike bars or certificates of gold, can actually be used for purchasing goods. In addition, it could also serve the needs of global monetary settlements with much greater efficiency and accountability than gold ever has.

Bitcoin retains significant advantages in terms of transparency and accountability. With adistributed ledgerthat can be publicly examined by any who wish to see it, all users can be held accountable automatically.

Even though gold was the best monetary standard in history, it still lacked transparency at the best of times. There still is no way to know with any degree of certainty that any given authority actually holds the amount of gold in reserves they say they are holding. The Nixon shock should teach us that its far more likely for governments to not be forthcoming when it comes to keeping accurate accounts of such reserves.

With Bitcoins objective and publicly visible ledger, no trust is necessary, since anyone can verify the veracity of transactions, whether they be for a simple consumer purchase or for a multi-billion dollar settlement between nations.

Ever since thefirst transaction of bitcoinsfor cash in 2009, the free market has decided that, like gold, Bitcoin does indeed have value. And just like gold, it does not seek the approval of any authority in order to be deemed worthy. Instead, buyers and sellers have determined a market price, giving it value apart from the whims of authorities.

The closest measure to the intrinsic worth of a bitcoin could arguably be the minimal cost it takes to mine it, making it a hard money due to the difficulties involved in producing it. But even this varies extremely around the world due to numerous complicating factors such as electrical costs, constant improvements in the efficiency of mining equipment, and currency differences.

Instead, the price is mostly determined, as it is with gold, through trade. Price discovery is mostly revealed on exchanges, causing significant volatility due to the relatively tiny supply that is traded on a constant basis.

The free market reveals an important advantage of Bitcoin, at least at this stage in history. A bitcoin investment demonstrates exponentially greater potential return on investment, being thesingle best investment in its 10 years of existence. When one is reminded of the massive difference in market sizes between gold and Bitcoin, it becomes quite clear which asset has more room for growth into the future.

Remember that gold is already an 8 trillion dollar market, whereas the market cap of Bitcoin stands at less than 300 billion dollars. Gold can, and has, grown in value a bit. Slowly. Over long periods of time.

Historically, gold has served as a tool for storing value and has maintained relatively the same value compared to other goods and services for hundreds or even thousands of years. Bitcoin, a new form of money that has much more room for adoption, can grow in value much more in comparison.

The singular advantage gold has over Bitcoin is its huge market size and already-established mass adoption. This results in less volatility and greater market stability for gold. But this is equally a drawback for the metal, as the growth potential is far smaller than that of Bitcoin.

Even as Bitcoin and gold resemble each other in a great many ways, it is clear that Bitcoin stands out with a few features that render it superior as real money.

In particular, Bitcoin enjoys one especially unique characteristic that gold can never acquire: programmability. While its true that gold has some important physical utility in electronics and jewelry, it isnt capable of executing functions such as smart contracts or being integrated into a variety of digital applications.

Due to the creation of Bitcoin out of mathematics, the limits to its functionality will expand over time as developers find new and innovative ways to harness the technology.

This is the objective truth of Bitcoin that supersedes all other forms of money: at its core, it is born of mathematics. Even more immutable than gold, mathematics has always existed, and will always endure, since the truths of math are discovered, not invented. The innovation of Bitcoin, one could argue, is more of a discovery than an invention, uncovering the ability to store and transfer data digitally whilst maintaining uniqueness and scarcity through objective and verifiable mathematical tools.

InPart Threeof this series, we will examine how money works today, especially with regard to the fractional banking system, money supply, inflation and quantitative easing; and well talk about how Bitcoin economists posit solutions to many of these problems.

Why Bitcoin? Part 5: Economic Extremism And Centralization

Why Bitcoin? Part 6: Characteristics Of Distributed Ledger Technology

Why Bitcoin? Part 7: The Separation Of Money And State

Why Bitcoin? Part 8: The Necessity And Desirability Of Wealth Transfer

Why Bitcoin? Part 9: The Next Steps For True Adoption

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