Show Notes

Here are links and resources mentioned in today's video. Enjoy!

• If you're ready to take the next steps into the world of bitcoin, cryptocurrencies, and blockchain...and really wrap your head around all this stuff, then be sure to check out Understanding Bitcoin: Navigating The Divide To History's Next Great Era!

Transcription

Gold and bitcoin are, in fact, very similar to one another. If you "get" gold -- if you understand it’s importance, role, and function -- then you’re just a few small steps away from understanding the importance of bitcoin.

And because bitcoin satisfies the five characteristics of money so well -- characteristics that we'll get into in just a sec -- it’s therefore money. Just as the free market has determined that gold, and to a lesser degree silver, are money, so too has the market freely decided that bitcoin is money as well.

But even more than meeting money’s five requirements, bitcoin is the first monetary asset created by people, for people; thus regaining control of money from central planners.

Like gold, bitcoin gives whoever possesses it full and total control and sovereignty over their money. But even more, bitcoin is gold perfected. In fact, bitcoin also solves gold’s biggest problems. As we'll be getting into in just a sec, bitcoin does everything gold does, and it does it even better.

So while yes, bitcoin is a digital currency, and while others might like to speculate with it, and while it’s price might be down this week and up the next...really, truly, this is what bitcoin is:

It’s the hardest, most durable, most secure and transportable form of money ever created. And it’s the best store of value in the history of mankind -- certainly a big claim. But as you begin learning more and more about bitcoin, you come to realize that this is undoubtedly true.

And while the blockchain technology behind bitcoin can be hard to understand, bitcoin itself is simple: It’s money that has a fixed supply that serves as an impenetrable store of value — value (aka: purchasing power) that can’t be stolen through inflation, confiscation, taxation, or any other means.

The same way people traditionally thought about storing cash under their mattress is the same way we should be thinking about gold...and ultimately how we should be thinking about bitcoin.

Now in order for something to be money, it must reliably perform two functions: It must serve as a unit of exchange, and it must also be a long-term store of value. That is to say, it must preserve the holder’s purchasing power over time.

Remember too that in order for something to be money, it must meet five crucial characteristics: Durability, divisibility, portability, recognizability, and scarcity.

Up until the modern era of government fiat money, free markets selected gold as money. And that’s because out of all available options (things like glass beads, shiny stones, sea shells, livestock, and slips of paper), gold best satisfied the five criteria of money best.

Gold certainly isn’t perfect, but for the past 5000 years or so, gold was the best thing we had.

Fascinatingly, bitcoin was created intentionally to mimic the best aspects of gold, and simultaneously correct for it’s biggest weaknesses. Said another way, bitcoin is digital gold -- gold, perfected.

The properties that make gold valuable have been perfected mathematically and programmatically with bitcoin. In this way, bitcoin fulfills all five characteristics of money. And it does this even better than gold does.

So let's now go through the five criteria of money -- again, durability, divisibility, portability, recognizability, and scarcity -- and see how bitcoin and gold stack up to one another.

Let's start with durability. In order for something to be used as money, it has to be durable -- it has to last a long, long time.

Gold has remarkable physical characteristics. It won’t corrode, rust, or dissolve, and it can’t be destroyed by fire. A single ounce of gold can be stretched into a threat 8 kilometers (about 5 miles) long, or flattened into a 300 square foot sheet. Pretty impressive.

But what about bitcoin? Is it indestructible? After all, it doesn’t even physically exist! Well consider this: You may know that the internet was originally designed to create a decentralized communications system.

This way, in the event of a nuclear strike, while part of the network would be destroyed, US leaders and military commanders would still be able to communicate. The internet was designed so well, that it’s all but impossible to destroy it completely.

And guess what? Bitcoin’s peer-to-peer network functions exactly the same way. This means that in order to destroy bitcoin, every node dispersed all across the globe would each have to be physically destroyed. And practically speaking, that’s impossible.

This means that like gold, bitcoin fulfills money’s first requirement, durability.

Now next, what about divisibility? In order for something to be money, it must be equally divisible. Here, think of dollars and cents -- a dollar can be divided up into equal units, and those equal units can be recombined to create a dollar.

Well gold can certainly be divided into smaller and smaller units. A single 1-kilogram gold bar can be divided into 10 ounce, 5 ounce, one ounce, half ounce, and even smaller equal units.

But because of the high dollar-denominated price of gold, even micro amounts of gold are still too large for small transactions, hindering gold's ability to serve as daily money.

But what about bitcoin, can it be sub-divided? Yes, in fact it can! Just as a dollar or gold can be divided into smaller equal units, so too can bitcoin. Each bitcoin is divisible into 100 million equal units called "satoshis."

This means that a single bitcoin can be divided as small as eight decimal places. This makes bitcoin perfect for any kind of payment, from something as large as an apartment complex, to something as small as a cup of coffee.

Therefore, bitcoin is much more robust and flexible than gold is. And all of this means that bitcoin easily fulfills money’s second requirement of divisibility.

Next up what about portability? For something to serve as money, it's gotta be easy to move around. And I don't know if you know this or not, but gold is heavy!

And this is one of gold’s biggest problems. There’s not only the expense and time involved in transporting gold, but there’s also the risk involved, too. And that risk extends to securely storing your gold as well.

But what about bitcoin? Well bitcoin is incredibly cheap to secure and transport. In terms of storage, all you need is a software wallet on your computer or phone, which is free to install and use. Or you could spend about $100 or so on a hardware wallet if you wanted.

As far as transporting bitcoin goes, while there are fees anytime you send bitcoin (which helps keep the bitcoin network running), these costs are nominal. And consider this:

While transactions have to be verified by network nodes this often happens very quickly. Transactions complete in thirty minutes, most often much faster, anywhere on the globe.

Try moving an amount of gold equal to your home’s value to the other side of the planet in thirty minutes for less than the cost of a paperback book.

What this means is, bitcoin fulfills money's portability requirement much better than gold does.

Next up, what about recognizability? In order for something to function as money, it has to be recognized and valued by other people, right?

And of course we know that gold is recognized everywhere in the world as being valuable. We don’t need to explain to anyone that gold is valuable — everyone instinctively “gets it!”

And further, everywhere in the world, gold is priced either in US dollars, or via the local currency, which is pegged to the US dollar. This means that gold is recognized as a universal store of value everywhere on the planet.

But what about bitcoin? Is it recognized everywhere? Well, it’s rapidly getting there. Pretty much everyone’s at least heard of bitcoin (including my seventy-one year old mother-in-law!).

Bitcoin is rapidly reaching critical mass (it's market cap alone tells us this) and it’s now widely recognized by many, many people all across the world as being something of value.

This means that bitcoin is rapidly fulfilling money’s condition of recognizability.

Lastly, how about scarcity? Of course in order for something to be money it has to have a degree of rarity.

Well because of gold’s low concentration in the Earth’s crust, and because it’s so difficult to extract and refine, gold is actually pretty hard to come by.

In fact, of all the gold that’s ever been mined in history, nearly all of it is still in circulation around the world today.

Not only that, but if all existing above ground gold were melted together, it would create a cube 68 feet long, 68 feet wide, and 68 feet tall — about as tall as a five storey building. That’s it! That’s all the gold, everything, we’ve ever mined across the entire world, throughout our entire history.

But guess what? Bitcoin’s even harder to come by. And that’s because the total supply is fixed at just 21 million bitcoin. There will never, ever be any more than this amount of bitcoin. And no one could ever create more.

Bitcoin’s supply limitation is achieved programmatically -- it’s built into the protocol. And of course this set of rules is agreed upon by all custodians of bitcoin, the network nodes.

And it’s in the self-interest of node operators to enforce bitcoin’s strict supply because that keeps it’s value high...which of course benefits them and the bitcoin they hold.

Not only is bitcoin the first example of a digital asset that cannot be duplicated indefinitely, it’s also the only thing in human existence that has provable, absolute scarcity. Because of this, bitcoin fulfills money’s final requirement of scarcity...and it does so more perfectly than even gold.