Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Myths can make men mad. Especially when those myths involve riches.
The conquistadors were drawn deep into the impenetrable jungles of South America by the legend of El Dorado—“the golden one”—who, the Spanish believed, ruled over a kingdom where the precious metal was as common as iron.
Before we mock, remember that we today have our own myths about money, not least the 50-year old delusion that fiat currency is worth the paper it’s printed on. But the lies we tell ourselves go further than folding money: we’re apt to go much madder about gold.
Everyone likes a good hoard, whether it’s Anglo-Saxon treasure or the mountain of gold found by some lucky Congolese villagers last week. What excites us about gold so? I think it’s because we’ve been conditioned to believe that it represents value in its purest, most unadulterated form. It’s crystallized wealth; the complete opposite of the government-manipulated currencies we have learned to mistrust, and this is backed up by the great reserves of the stuff held by governments, institutions, warlords and more. It is not just a metal, it’s probably the world’s most valuable brand (and certainly the most historic). No wonder our highest praise is to describe someone or something by saying it’s “as good as gold.”
But Bitcoin has revealed that gold’s reputation relies more on its glister than on its actual quality as a store of value. To understand why, we need to ask why gold was for many centuries considered the best form of money?and also, what does make good money.
Money was invented to enable us to “store” work and transfer it to an entity in exchange for another item or service we value. Before money, all the value generated had to be immediately “spent” through the provision of a service as a quid pro quo. If you give someone a flint axe today, who’s to say they will give you ten fish-hooks tomorrow?
In many respects, money's use as a store of value is similar to the way a battery is used to store electricity until it is needed. Just think what the world would look like without the invention of the electric battery: no mobile phones or electric vehicles, no pacemakers or missions to Mars. Every application would require its own generator.
The analogy between money and batteries goes even further. With the latter, we see that whenever a better battery technology is invented, people quickly switch over to it since the benefit of storing energy better is immense and obvious. We saw it with the move from Leyden jars, to lead acid, to lithium-ion and soon to solid state batteries. We judge a battery on its ability to store and discharge effectively, its size and ease of transportation and, increasingly, its impact on the environment.
Money has a similar set of properties, and whenever we find a new, better performing asset, it has inevitably replaced what we used before.
By any objective standard, Bitcoin is not only as good, but is in fact, gooder than gold. But some of its superior properties are harder for some to see. Scarcity, for instance, is baked right into the myth of gold, which explains why stories like those Congolese villagers, Sutton Hoo or Sutter’s Mill make headlines around the world. But what these stories demonstrate is that we simply don’t know how much gold there is: another deposit could literally be under our feet right now—or on a not-so-distant asteroid.
By comparison, Bitcoin is scarce because it is limited to 21 million units by mathematics and logic. As long as these two foundations hold firm, investors and users can be certain that this fixed supply will never change, and if maths and common sense stopped working, the supply of Bitcoin would be the least of our concerns.
So, what happens when we find something better than gold? The answer is obvious: people will inevitably switch. It could take a decade, maybe even two, but the benefit to society and to oneself of owning and using a better store of value is too great to resist.
If you’re wondering why Bitcoin has taken a while to chip away at gold’s hegemony, remember that the metal has been the preeminent store of value throughout much of human history. That’s a lot of myth to overturn. What’s remarkable is that Bitcoin has made such inroads in 12 short years that we now stand on the cusp of the Bitcoin Age: a post-golden period where we will witness the world transform due to the power of the Orange Pill. What a time to be alive!
Gold is so wound up in our conception of value that its replacement by Bitcoin will bring not just a financial revolution, but a cultural one as well.
Last week saw Goldman Sachs start trading Bitcoin again, showing that the bank remains firmly bitten by the Orange bug. But this set me thinking: what happens when Bitcoin has not only established hegemony over other assets, but supremacy?
In the not-so-distant future, when Goldman Sachs gets a mention on the news, will we see children look up and ask: “Mummy, Daddy...what does ‘gold’ mean?” And will they listen, saucer-eyed, while their parents explain that long ago, people valued this funny yellow metal rather than the much rarer, more fungible and far more portable Bitcoin?
A fantasy perhaps, as unlikely as imagining that Goldman Sachs will consider changing its name to reflect the new, improved money. But not nearly so distant a dream as it seemed just 12 short months ago!