Bitcoin is Closer to Paper Money than Gold

Gold is a respected money because its supply is limited and hasn’t drastically increased for millenia. Gold mining is hard.

Paper money, by contrast, has an unlimited supply. It’s made by people with paper who can, do, and have printed immense amounts more. This is considered a defining feature of paper money.

But it’s not. It’s just what has happened so far. Notes haven’t failed because of counterfeit, but because the people in charge have decided to print too much.

Now consider Bitcoin. Is its creation limited by physical and geological realities? Or is its creation limited by pacts among people, and it may, or may not, get increased?

It seems to me, in this sense, Bitcoin, like all cryptocurrencies, is closer to paper notes. Further, I’d argue, this is a good thing.

Fiat was an improvement over gold. Fiat has been repeatedly adopted, by country after country, decade after decade, throughout history. If gold provided a huge comparative advantage, we’d expect the country who stuck with gold to triumph the way a lion will emerge from a cage full of sheep.

Fiat is easier to hold, to carry, and to trade. It carries a significant flaw that it is easily inflatable but just acknowledging this doesn’t necessarily make it inferior to gold. It can be that fiat is superior to gold, but, has a serious defect.

First we had gold, good money, but often hard to use in practice. Then came fiat, an improvement in many ways, but still seriously defective, allowing for centralized control and very conducive to inflation. Now comes Bitcoin. It isn’t a throwback to gold, but an advancement on fiat, taking most of fiats best attributes, and adding decentralized control making inflation, potentially, less likely.

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