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RE: Gold or Bitcoin, What Would You Choose as Money?

in #bitcoin4 years ago (edited)

Neither of these are money. They are commodities that people use as a store of value. In order to be "money" you need to be able to buy things with it directly and that means closing the entire loop.

Right now there are lots of places you can "spend" bitcoin, but the fact is none of them really accept bitcoin. They accept dollars or pesos or whatever, but they let you give bitcoin to someone else who will then give them their dollars.

Money is and can only ever be worth what you can buy with it. By trying to tie to something which you believe has intrinsic value, but really only has perceived scarcity value, you detach from the marketplace entirely and you really are just hoping that someone doesn't make a breakthrough.

Aluminum is a good example of this. It used to be rare and valuable and only something the very rich could ever afford. Then we found more mines, and invented better, more efficient extraction technique and now our biggest problem with Aluminum is trying to keep it out of landfills.

There are asteroids not too far from earth. Some of these asteroids have more gold and other precious metals in them, than have ever been extracted in all of human history.

When this happens, the biggest problem we'll have with Gold is trying to keep it out of the landfills.

That's what's meant by a commodity.

Bitcoin is no better. The only thing it has going for it right now is inertia effects and first mover advantage. But DASH and ETH are eating bitcoin's lunch right now to say nothing of the 10,000 other alts.

VIVA or something like it, will make the whole argument moot anyways, since our goal is to completely close the loop on finance by removing governments and banks from the equation and putting that money back into the pockets of people. But we allow and encourage people to continue dealing in what they understand best. Their local fiat.

At the same time we encourage people within the VIVA economy to hold, trade and play with whatever currencies they want.

Excellent post though! It makes people think. I upvoted it.

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Three things:

  1. I disagree that gold and bitcoin are not money. BOTH are money. I can and have bought things with both. Just because they are exchanged for something else makes no difference. I ran a business where I took in USD but most of my expenses were in HKD and CHF so I regular converted my USD directly to both HKD and CHF. Payout was also in HKD. So did that make USD "not money"?

  2. The asteroid example is a red herring. What has never been brought up is how insanely expensive snagging one of those theoretical asteroids could be... what if the cost of extracting the gold is only equal to or less than the value of gold itself? Until the theoretical asteroid is mined for a profit, this point is completely moot.

  3. There has been plenty of local fiat over time... most of it is gone, but gold is still here through all those mining breakthroughs and technological inventions. Perhaps it's a pretty decent store of value after all?

There has been plenty of local fiat over time... most of it is gone, but gold is still here through all those mining breakthroughs and technological inventions. Perhaps it's a pretty decent store of value after all?

No not really. If you look at historical uses of gold it was never used as money for regular folks nor was it ever used in daily commerce. It's role was mostly limited to the settlement of large accounts and debts. The primary reason for that being trust in the issuer. It's pretty damned easy to melt yellow metal into an ingot of lead. Most people don't have the skill to even distinguish fools gold from real gold, let alone actual false gold. So people just plain didn't use it in their daily lives, ergo not money.

The act of converting whatever you have in hand into whatever you need is called "negotiation". Gold has NEVER been a negotiable asset. You may have managed to trade with a person once or twice, but try going to 7/11 and buying a Slurpee with it. Try settling a debt in it even. Unless the contract was written specifically as a commodity contract, you always settle in n fiat of gold.

Fiat is money because it's always negotiable as long as the people you're trading with have their faith in the issuer.

Going back to your own example, you had to trade USD for local fiat in order to pay bills. That means that in your case USD was not money, it was an asset or commodity that you traded for actual money.

You blow this off like it's not important. But that's the real problem.
People assume that money is a thing with backing. But it's not. Money is a fungible instrument that allows you trade one asset for another without an intermediary step. You can do this because people have confidence in the issuer. Once that confidence is gone, trust is broken and even though it may have been money at one time it's no longer money.

Taking this a step further, if you look at Aluminum it too was an incredible store of value, until one day it wasn't. Gold and everything else you're trying to store value in, will eventually collapse because people have to have confidence in their ability to utilize it.

Put another way, what makes money, money and not just a store of value, is the idea that it will maintain it's purchasing power parity during the time in which you hold it. Not go up, not go down and not be subject to "subjective valuation".

In particular, money itself is not useful unless it's being used.

In short, you can think of money as a form of energy, energy to make your own will made manifest in the world. Sure you can try to hold onto Gold or anything else and hope you can trade it for money when the time is right. But it's not money, it's just an asset and it may be there for you or it may not.

I appreciate the effort you have made to explain your position. However, the only piece we agree on is that regular folks did not use gold coins. They used silver. :)