I have been following Bitcoin for quite a while now. First, I started to get interested by Bitcoin at its inception in 2008, and more recently, in 2016-2018 as it picked up momentum and started creating a buzz. The first question I asked myself was: what does Bitcoin resemble as an asset?
I have read significantly on the technical aspects of the Bitcoin protocol and its nebulous creator, Satoshi Nakamoto. While the literature describing Bitcoin is fairly abundant and accessible to describe how it functions and what it tries to revolutionize, I have found that there is limited information pertaining to the role of Bitcoin as an asset and as a solution to mitigate the exposure every one of us has with respect to the current fiat, debt base monetary system.
When I started engaging in conversations with other Bitcoin fans like me, and that I initiated the discussion regarding the similarities that Bitcoin may have with other assets, everyone would look at me straight and say: “Bitcoin is like no other thing!”. Although it is true that Bitcoin is certainly like no others regarding its underlying protocol and technology (the Blockchain), I found that statement a little bit misleading and untrue. Here is why.
Clearly, Satoshi was irritated with the ever-centralizing architecture of the modern day monetary system and the dominating roles that centralized institutions managed by some elite groups have over the mass. Bitcoin was his invention to help us evade this. When looking at the fundamentals of the code, and more specifically the limited supply of Bitcoins, the dynamically moving difficulty of blocks and the concept of “mining”, it was clear to me that Satoshi espoused the fundamentals of an equity based monetary system resembling the defunct gold standard. Satoshi had, in his principles, the concept of sound money at heart, and the teaching of the Austrian economic school of thoughts of the Hayeks and Von Mises of this world as a governing mantra. Satoshi programmed Bitcoin to resemble gold in significant ways.
What made gold what it was for the Egyptians in 4000 B.C. and for subsequent major civilizations up to 1973, a period spanning nearly 6,000 years, and what made it so desirable that it drove Satoshi to implement such properties in his Bitcoin code?
The answer resides in the concept of sound money. Aristotle and Alan Greenspan, born 2200 years apart, would agree today regarding which properties are needed to have sound money. Both have established that sound money must:
- Be durable;
- Be portable;
- Be divisible;
- Be rare and hard to produce;
Most importantly, sound money is money which purchasing power is determined by markets, independent of governments and politics. Gold has, for 6,000 years, met most of these criteria when used as money. Satoshi wanted Bitcoin to somehow mimic the strengths of gold and circumvent its weaknesses.
In my next post, I will provide more facts and data which will establish how the fundamentals of gold and Bitcoin meet the criteria of sound money set forth by Aristotle and Greenspan, and the major shortfall of fiat money regarding these criteria.