Bitcoin v. Gold Discussion
Ancient Coins.

Bitcoin v. Gold Discussion

I recently finished digesting the debate between Peter Schiff and Jack Mallers (you can watch it here https://y2u.be/MSlEQA1BoOE) and I found that many of Schiff's arguments sounded convincing at first glance, but totally collapse under finer scrutiny.

Peter says you can tokenise gold, essentially describing the way that Bitcoin already works. Critically, he notes that gold (instead of BTC) is superior in this way, because it has alternative uses, whereas BTC is backed by nothing but confidence (in his view).

I find it nonsensical to claim that alternative uses make a monetary system store of value superior. Gold’s “alternative uses” is part of the total set of its utility. Gold has a total set of utility provided, and BTC has a total set of utility provided (Peter argues that there is none, but I will destroy this contention below). The total set of utility provided drives usage and demand and price. I believe this to be axiomatic to any asset.

Let’s focus on the store of value or monetary system part of this argument. BTC is fundamentally abstracted to almost exclusively the monetary utility that it seeks to solve. In this first-principles sense, BTC is more efficient than Gold or at least more lean, as its existence seems to be purely to fulfill key monetary requirements. Gold was discovered by humanity ages ago and it seems to nail a lot of the key monetary requirements for a store of value, and is also used in jewelry and industry. BTC was pertinently designed to fulfill these metrics.

I see no logical reasoning behind the claim that because Gold has other uses, it is hence superior in fulfilling key monetary requirements. The effective fulfillment of monetary requirements is the metric for a store of value/monetary system, nothing else.

Let’s look at the claim that BTC has nothing supporting it but faith by people. Schiff notes a critical flaw in BTC (in contrast to gold, in his view), that the only thing keeping the price up or the entity going is confidence therein. Without the social confidence, in Peter’s mind, the code entity will collapse entirely.

I can destroy this contention very easily. Let me ask the reader this: what is the conceptual difference between losing all confidence in BTC, versus losing all confidence in say, high-rise London residential investments? Yes, they are different – the one is code, the other is a physical set of rooms. But what fundamentally separates the two assets if either experiences a partial or total loss of social confidence (demand destruction)?

There are plenty of areas that have gone backwards in terms of social confidence and have suffered due to urban blight (I am reminded of Ponte City in my own Johannesburg...). Just so, many cryptocurrencies have since evaporated.

Whilst the world is ever changing, it seems that BTC has been and is successfully fulfilling several critical utility elements. Just so, the aforementioned apartment seems to have been and currently is fulfilling several critical utility elements.

FTX used to be an asset, but it turned out that the cretin founder was just stealing people’s money. There turned out to be no utility, and the social confidence disappeared, and the price tanked.

I must add, Peter himself admits that code or software can have utility and value, but then goes on to postulate that BTC (which is code) has no intrinsic value, only social confidence.

Conceptually, then, social confidence (demand) for an asset class will continue as long as it provides utility. The BTC code provides utility.

This key conclusion is highly relevant to the following contention by Schiff – that BTC is like fiat currency, it is only propped up by confidence or belief. This is not true for BTC (as postulated above, it provides utility, hence it produces confidence, hence it produces demand) and actually isn’t true for fiat either. Fiat has utility.

Fiat shares many of the utility features of BTC and Gold, too, such as divisibility, store of value and being able to integrate it with the internet. Fiat is already digital, and arguably the financial plumbing is much more extensive than for BTC, although much less efficient and in many cases, totally archaic and/or dysfunctional (try sending Rands to Dollars as quickly as possible without using crypto, then report back to me. Now, try the same but with crypto).

The issue with fiat, and this why BTC so pertinently followed the Great Financial Crisis in 2008, is that elements of its utility is breaking down. The greatest threat to its monetary utility is its ever limitless supply, as centralised players create more of it, often to their own benefit. This creation is fueled either by money printing or unsustainable debt accrual, both of which are fundamentally inflationary.

The other key threat, which is why BTC is so well-loved by libertarians, is the authoritarian threat to fiat. In a future dystopian world of Central Bank Digital Currencies, your wealth may not be under your control.

What happens if utility degrades? Recall the logic we have demonstrated above. Utility degradation will lead to loss of social confidence, which will lead to lower value – debasement of the currency.

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