Gold and bitcoin should be the Batman and Robin of alternate currencies who blast the fiat-evil together. Instead, they quarrel a lot about who's the best or whether one of them even exists as money.
Goldbugs point to their metal's intrinsic or objective value as knockdown proof of its superiority. By this they mean gold has inherent value because of factors such as its history as currency and its use in producing other goods such as jewelry or computers. They accuse bitcoin of being a currency-wanna-be, with no uses outside its own protocol. Some goldbugs go so far as to call bitcoin a scam because the currency is not tangible.
Two arguments are being made here. Neither one survives scrutiny.
Gold has intrinsic value. The truth: no currency, good or service has objective value. Not even water and food, which are essential to life, are valuable to a man who is committing suicide. The worth of everything is defined by people in varying contexts who act to achieve their own specific goals. In other words, value does not live within the object but is ascribed to it by human beings. This is true of both gold and bitcoin.
Bitcoin is not a real currency. The truth: anything accepted as a medium of exchange becomes the currency within that trade, including seashells, tulip bulbs, and goats offered as a bride-price. Or, as an economist friend likes to say, “if a dog eats it, it's dog food.”
The question now becomes, “is gold or bitcoin a better form of currency?” Adam Smith contributes the insight, "All money is a matter of belief." This refers back to the subjective theory of value, of course, but not all subjective values or beliefs are equal. That is, if a belief or trust in gold is widely held, then gold will be widely accepted as a currency. Although the words “better currency” can never escape the context of “better for whom and for what purpose,” it is reasonable for most people to prefer a currency that is almost universally accepted rather than one in which few people trust. Gold has the decided advantage here.
Gold has other clear advantages. It has a long history of value as a currency while bitcoin began to circulate in 2009. It has many alternate uses which props up its value as currency. (Here, bitcoin is considered only as a medium of exchange and not as a protocol that has a multitude of uses.)
In other standard features of a desirable currency, there is less of a discrepancy between gold and bitcoin. Both are scarce, with only 21 million bitcoins being possible. They are durable. They are divisible, with the tiniest bitcoin unit being a Satoshi or .00000001th of a whole coin. They are fungible. They require effort to produce and so are not prone to artificial inflation.
The basic difference between gold and bitcoin comes down to perception – Adam's act of belief or trust.
Perceptions change. And the perception of bitcoin's value is likely to grow dramatically in the next few years, closing the gap with gold. The reason? It comes down to a concept called “the benefits of adoption,” which is often confused with intrinsic value. For example, the benefits of adopting the habit of eating food is so high that food is often viewed as having intrinsic value.
The benefits of adopting bitcoin as a currency are more obvious every day. Some of them come solely from the nature of bitcoin itself. It can be transferred instantly over the Internet, and in large amounts. It is far more difficult to steal and costs nothing to store in a digital wallet.
Other benefits of adoption come from a mixture of bitcoin's nature and politics. Governments and central banks are racing to strip privacy and personal control away from money in order to rake in taxes (in their many forms) and to continue inflating. In India, for example, there is a push to link biometrics such as iris scans with bank accounts. In Japan, plans are underway to have the tourists expected for an upcoming Olympics 'register' and link their fingerprints to credit cards so that their hands become currency. Privacy is murdered in the process.
Bitcoin is one of the last sanctuaries for people who wish to mind their own business and let others do the same. Granted, it is not anonymous. The blockchain is an open ledger but it is one that resists scrutiny, especially by centralized authority. Bitcoins are transferred without credit cards, a credit report, identifying documents, a bank account or the other standard tools used to inform authorities of every cent being spent by every person.
Bitcoin also resists manipulation by governments and central banks. When crisis-Greece clamped limits onto the amount of money people could withdraw from their own accounts, for example, there was no comparable limit on bitcoins. None was possible. The use of bitcoin soared.
Another lesson from Greece: bitcoin moves seamlessly across borders. Gold was being confiscated by border guards who went so far as to remove jewelry from the necks of travellers. The same wealth in bitcoins could have been exported safely and saved from the greedy fingers.
The privacy and flexibility advantages scroll on and on. The mere fact that bitcoin does not bend to government requirements such as age restrictions means a vast segment of society can use their own wealth to their own benefit.
Perhaps it is sad that the benefits of adopting bitcoin are so heavily correlated with the rise of statism. If so, then there is an immediately heartening reality. Bitcoin exists. And other cybercurrencies. Freedom as well as wealth is being mined.