Bitcoin Forum

Original Post: https://bitflate.org/post/2019/11/29/how-gold-became-money.html

Gold has been a valuable commodity since ancient times. When gold showed up in written history, it was already a valuable commodity [3]. Societies had used it as money. We don’t exactly know how it became money. There are hypotheses [1].

- Scarce: Its supply is more limited than other chemical elements. You cannot easily extract it. The mining process has become intensive over time.
- Beautiful: Gold is beautiful. It is soft and easy to mold. It makes good jewelry.
- Unique atomic structure: Gold has a unique chemical structure. It doesn’t rust or interact with other chemical elements.

These hypotheses are reasonable. They make a good case for gold as money. But human’s obsession with gold is strange. It permeated across societies. Closer examination shows these hypotheses are flawed.

- Scarce: There are many other rare chemical elements. Silver is scarce.
- Beautiful: Gold has a yellow color. While we perceive it as beautiful, gold has probably influenced our view on its beauty. Its color is not desirable in some applications. For example, we like silverware more than golden silverware.
- Unique atomic structure: We didn’t have the tool and knowledge to examine gold chemical properties before it became money thousands of years ago.

These hypotheses seem like afterthoughts. We try to stitch together some ideas that help us explain why gold became money. There are even more bizarre theories. We’re innately made to like gold. The gods make gold to seduce humans. Gold came from outer space [2].

In this post, I want to discuss the rise of gold in a different view. I think gold rise as money is related to the rise of metallurgy. Waves of innovation in metal technology destroyed and created empires. Gold is invaluable money because it is at the center of metallurgy.

The Rise of Gold

The first metal that humans interacted with appears to be gold. Small amounts of natural gold had been found in present-day Spain during the late Paleolithic period, around 40,000 BC. The Paleolithic period is known as the Old Stone Age. Gold was the metal that enabled humans to move away from stone tools. This is an important development. After the Paleolithic period, we went through Upper Paleolithic (Late Stone Age), Mesolithic & Neolithic (End of Stone Age), Chalcolithic (Copper Age), Bronze Age, Iron Age. Subsequent developments in human history were marked by advances in metallurgy.

Early metallurgists started their learning by interacting with gold. Then they learned how to manipulate other metals. Gold is rare enough that it became valuable to metallurgists. There is not enough gold to mass-produce gold tools. It’s rare and shiny. It became a decorative metal, a symbol for prestige and power. Gold is often seen as jewelry. But it is really a display of metal technology advancements. When metallurgists created their tools or weapons, they would decorate the items with gold. Metallurgists were the engineers that help ruling elites destroy and create empires.

Vietnamese folklore told a story of king An Duong Vuong [5]. He ruled the ancient Vietnamese people during the Iron Age. The story said that An Duong Vuong possessed a magical crossbow. With this weapon, he was able to resist the Chinese invasion. History also mentioned Cao Lo, his weaponry engineer [6]. An Duong Vuong was finally defeated when his enemy stole his magical crossbow. His kingdom fell apart and was subjected to Chinese domination for the next 10 centuries. The thief was his Chinese son-in-law. The magical crossbow was likely a metaphor. It may be a metal technology that gives the Vietnamese king superior weapons.

Metal development was an important driver in human history. Gold was at the center of that development. The metallurgy engineers and ruling elites were obsessed with gold. Normal people followed. Gold became the most valuable form of money.

Bitcoin and Gold

Fast forward to the 21st century, gold was slowly fading away. Fiat currencies used to be backed with gold. But the Gold Standard had hit world economies many times. During the Great Depression of the 1930s, gold rigidity spread recessions to many countries. In 1971, facing a shortage of gold reserve, the United States terminated convertibility of the US dollar to gold. This event ended the gold influence on monetary policies.

Crypto literature pitches Bitcoin as digital gold, an emerging alternative to gold. Bitcoin design imitates gold features. It has a limited supply of 21 million coins. The coins are created through a mining process that consumes electricity. In some ways, Bitcoin is better than gold. It does not require physical storage. We can transfer bitcoins almost instantly. In other ways, Bitcoin is worse than gold. Bitcoins are not physical. We can’t use bitcoins for anything other than holding. We rely on economic ideologies to justify Bitcoin’s role in the market.

We’ve been through the Gold Standard. Economists and politicians are not eager to return to gold-backed currencies. In the digital age, we can create reliable banking networks of fiat currencies. Central bankers find digital currencies easier to manage than gold-backed systems. Bitcoin supporters pitch the Bitcoin Standard. It is digital native and supposed to be better than the Gold Standard. To make the case for Bitcoin, people downplay gold. Gold is just a shiny and scarce metal that people use for decoration.

But Bitcoin is still searching for its use case. We see gold was money. One of its prominent applications is jewelry. We conclude that jewelry is the secondary market that drives gold demand. From this conclusion, crypto builders think there may be a similar secondary market for Bitcoin. Our ignorance of gold history creates a gap. We have not found the missing puzzle piece.

Search for Bitcoin Metallurgy

We’ve been looking in the wrong place. Jewelry is just the surface of gold rise. It’s a minor application that came out of metallurgy. It is not the secondary market that drove gold demand. Gold became money because it was an important part of metallurgy. It was the symbol of the metal revolutions.

From this insight, we should think about the equivalence of metallurgy for Bitcoin. Bitcoin has similar traits. It is technology. There is an ecosystem of hardware and software around Bitcoin. If Bitcoin were to be like gold, it would be the money that powers the next technology revolutions. Advance in the Bitcoin technology ecosystem may produce new use cases for Bitcoin. The “Blockchain, not Bitcoin” projects did not produce new use cases. They may have gone too far and became detached from Bitcoin. Successful applications may not have much to do directly on Bitcoin. But maybe, they will need to interact with Bitcoin like the way other metals interact with gold.

It took gold and metallurgy 30,000 years to transition humans away from stone tools. We’re still very early with Bitcoin.

References

[1] Why do we value gold? https://www.bbc.com/news/magazine-25255957

[2] Does gold come from outer space? https://www.bbc.com/news/magazine-22904141

[3] History of gold https://onlygold.com/facts-statistics/history-of-gold/

[4] History of Metallurgy https://en.wikipedia.org/wiki/Metallurgy#History

[5] An Duong Vuong https://en.wikipedia.org/wiki/An_D%C6%B0%C6%A1ng_V%C6%B0%C6%A1ng

[6] Cao Lo https://en.wikipedia.org/wiki/Cao_L%E1%BB%97

It is nice article buddy.
You please go through the rise and rise of bitcoin documentary video to learn the boom of bitcoin.
There are many people made the article over the many forums

Gold became money in the era which had a lot of resources and too little people to care about .
Right now gold is not money , it's a store of money , you can never go to any shop ans buy something with gold , you will have to sell it first .
I think Bitcoins is already money , it is both , it can either be used as a store house of numerous possibilities , can be stored since price rises or can be used to even pay for things even the normal one's like coffee.
Therefore gold is not money now and bitcoins is alre.

Bitcoin limited edition. The owner of Bitcoin is unclear. Satoshi, co-founder of Bitcoin. But not everyone. Anyone can access Bitcoin. Much more people will come to the investor. Price activity will decrease. There are 8 billion people living in the world. How many of them have phones yet?

One day, humanity will come into space. A colony will be established on Mars. Will we trade gold on Mars: d?

We can see the history of gold from the past. Since a long time ago, gold has been a means of payment transactions by previous people. Of course, gold can be money because it's hard to get. The most valuable natural produce.

While Bitcoin can be money because it is hard to get and there is market interest. Without us knowing, Bitcoin has a value equivalent to the technology in it.

Gold gains importance as money out of its limited availability as well as through its transformation over generations of usage. When the availability gets limited, automatically there is growth. Another thing for the growth of gold is the jewels and gifts out of it. Earlier days kings gift nad wear gold to show the power and make them apart from the common people. This too is a reason for the rise in the value of gold. Later it gained usage as coin, transfer of valueon trades then it got into mainstream monetary system where gold is being deposited to print money. Everything is out of demand and limited availability. Bitcoin too has similarity, but it differs through its virtual presence.

Interesting reading. Would agree for sure with last sentence.
Early adoptes called themselfs in 2012-2017 but they were super early adopters.
Now we are still early adopters.
1 Bitcoin for $100 000 could be end to early adopters by me.

This is a very interesting take, but then gold is not exactly money. I mean you just cannot pay for things in gold as easily. For example, you can't walk into a shop, pick something up, and offer to pay in gold. With bitcoin, you can still do it in places that accept it.

Well, this is one big difference between the physical gold and Bitcoin. With Bitcoin, we can use it as a currency though it is not yet as massive as we are hoping it should be. Just like gold, Bitcoin can also be easily converted to cash anytime online. The comparison between gold and Bitcoin will not be ending here, and I am sure that into the future people will still be looking at both assets side by side. Though I would say that the real gold does not need to prove itself and its value and  nobody will ever predict that it can soon be valueless.

That means Bitcoin and Gold are structurally very different! But OP has done a mistake by saying that Gold has become money - that is absolutely wrong! You can't just walk in to a store and pay using gold coin while purchasing goods! Gold is better known as a store of value! You can certainly go to a Jeweler and sell off your gold to get hard cash and then spend it to buy anything you want! Same goes for Bitcoin as well! It is still very difficult to find a merchant who accepts bitcoin as a payment method unless you use a crypto debit card!

So neither Bitcoin nor Gold has become money yet! They are store of value which can be easily converted into cash to unlock the value and use it in the market! Unless you are using a crypto debit card, it is unrealistic to pay directly from your crypto wallet to merchants crypto wallet and then wait for confirmation!

but there is a big difference here that is overlooked. gold wasn't money in first place. instead some day people decided to use it as money and then after some time they gave up and stopped doing it. in comparison, bitcoin was designed to be money and it has been considered money from the first day. and people have been trying to use it as money ever since. then some people came along and decided to use it for other reasons such as day trading, store of value,...

Also the same goes with bitcoin actually, the only difference is the market adoption and appropriateness of the applications that we have. In gold, there are not much transactions because people chose gold to be invested for a long period of time. While in bitcoin, people chose it to be come like a currency that you could spend right away and at the same time, like gold, that you could invest for your future living.

This is all very true and is why both Gold and Bitcoin are valued so highly by investors. Gold has been around since ancient times and people have always fallen back on it as a true store of value, especially when times get rough. Bitcoin is another asset which the people in some countries like Venezuela and Uganda have seriously used to get themselves out of times of crisis.

As an investor, I think it is seriously important to learn about how money works and where it originally came, so that you can truly understand the value of Bitcoin now and in the future.

No, they are not flawed.

- Scarce: other scarce things that had some nice properties were valuable too - silver, platinum, gemstones.
- Beautiful: so what that it's not suitable for every case? It was still used for decoration a lot. If gold was bleak, it wouldn't become so valuable in the first place.
- Chemical properties: you don't need to be a genius to notice that it doesn't rust or tarnish, unlike other metals, and that you can store it for generations.

There are also some other properties - gold is very easy to mint, and being minteable is important property for money - it allows creating standardized coins of the same shape and weight.

Indeed gold is rarely used for any transaction and is only stored in the long term even decades for their investment.
Bitcoin is easy to use now many olshop have accepted the bitcoin payment method, which means that bitcoin is increasingly being used for transactions that are fast and can also be used as an investment, but people now prefer Bitcoin over gold because bitcoin can jump at any time unlike gold .

Yes indeed and the only difference between gold and bitcoin is that bitcoin is highly volatile wherein gold is stable and does not tend to fall steeply. But at the same time, people cannot expect the margin of profit in gold which they can achieve from bitcoin. I feel gold and bitcoin are two different things and cannot be compared together due to their nature and type of investors it attracts.

Good article!
Thanks!

interesting for me to read, gold is in physical form while bitcoin is in digital form, so the difference is none at all, they can be sold as money at the same time, but many bitcoin haters and a bit of gold haters, need a lot of time to get users or adopt bitcoin bigger, at least the same as people used to use gold as money

I find gold ugly actually. I don't mind silver but as precious metals go, shiny things don't attract me. My grandparents love gold, so I get it, but look around you and ask which millennial finds gold attractive?

Mining gold hasn't become more intensive over time, it has slowed down in many countries. And outside the planet are asteroids full of gold.

BTW gold does tarnish under certain circumstances.

Bitcoin is digital. Doesn't need to care about any of these.

I think Bitcoin and cryptocurrencies are still young and very small. maybe Bitcoin will be digital gold, maybe it will be currency. It's hard to tell this early in the game. what Bitcoin can do will depend on the features added in the years to come. but I personally believe bitcoins true value and future lies much more as an asset class then as a currency to be spent. It'll be more like gold then local currency. It's deflationary nature will strongly discourage it's use as a currency, and it's properties as a store of value and inflation hedge make it a far more natural fit then as a traditional means of exchange.

In the first place, there are no ending comparisons about these two valuable stuff. But I believed in you that Bitcoin is good than the gold.
Here is I can show you how the infographic explains with regards to the Bitcoin and gold comparison, bitcoin-vs-gold-infographic (https://www.jmbullion.com/bitcoin-vs-gold-infographic/). There are a lot of discussions about this and I agree on what OP stated above and bitcoin has an advantage among the gold.

Here are a few advantages of Bitcoin shown the image and you can read the link for further information.
https://i.imgur.com/TnrRntf.jpg
source: (https://www.dailyfx.com/bitcoin/bitcoin-vs-gold.html)

I don't think Bitcoin will ever be money or legal tender. I think it acts better as a store of value digital asset. I think that the current monetary financial system in place isn't going to go anywhere anytime soon. I'm thankful for them even allowing Bitcoin to thrive a little, because in order to kill Bitcoin, you simply ban crypto trades against fiat, and the system and watch the market deflate. But this isn't the issue, they are playing it safe for now!

Well from the number of online and offline stores that already accept btc as a means of transaction, i would say btc is more money than gold, although am just speaking from my own little observation, i haven't come across any online merchant that accept gold for payment but there are several that already accept btc.

Bitcoin can be an alternative. It is more possible than being the main currency. Just like gold, Bitcoin have value that can be treasured and store for the future. Even though I want Bitcoin to be accepted widely, it's still hard to believe that crypto can be the main use for transactions.
Just like what I have mentioned, they don't have to become a money as long as they have value, that's already enough.

Since the beginning, the native people believes that 'gold' is the money made by God, so they are really valuing it too much that if you have a lot of gold, means you are really rich, and then as the decades is passing by, the way money is evolving but the gold is still there, as we continue to adopt this and considered this as our golden treasure .

Quite interesting post but what you forgot to mention is yow gold seized to become money. It even isn't used as a commodity backing money. Let me explain what is the reason behind Fall of Gold

After a few years of using gold in almost every economy no matter how ancient it has been. Governments and kingdoms faced one single problem which was increasing population but less resources. To correct this imbalance they began to take war with neighbouring kingdoms which are richer and looted their wealth. But there were kingdoms which took the other path too. Which was adulteration. The coins of gold were adulterated a bit everytime they came back the government and government minted them again. This process was repeated multiple times and the quantity of gold was each time decreased. Now, Problem here was that governments will always suffer problem of shortage of resources. This is why fiat was introduced. Even if Bitcoin becomes currency for few years governments will once again face a similar problem after a few years.

Very interesting read. Thanks for sharing.

As you said, we are still very early on with Bitcoin... it is hard to predict what it will really become. But so far, Bitcoin has been standing against the test of time: 10 years is not long, but at the same time, 10 years today would be equivalent to many and many decades of before, as technology advances exponentially.

If we look past the idea of making quick money, Bitcoin offers a different solution to our financial system: an alternative to this inflationary process that eats away people's buying power (and lower-income individuals will feel that the most). In this case, I believe that the intangibility of Bitcoin works in its favor, as it won't become, as gold did, a physical object that demonstrates wealth.
 

I kinda did:


I think gold is no longer relevant because we can better manage fiat currencies. In the 20th century, we developed better communication networks. We departed from the Gold Standard in the 1970s. This is around the time when computers started to take over.

I agree with your take on fiat rise. Chinese dynasties introduced paper money to move away from gold. People disliked the Gold Standard since its start. But we weren't able to move away from. It always came back. I think it's possible that gold will make a comeback along with Bitcoin.

I think this is a misinterpretation of gold history. Gold had been money before it showed up in written history. We really didn't know why it became money. Its origin is somewhat mysterious. So we came up with trivial explanations like a random choice, beauty, and scarcity. We need to see gold in the context of the metal revolutions. Gold and the metal revolutions really gave those innovators economic and political advantages. It's not a random choice of using gold as money.

Bitcoin was digital cash. Then its narrative changed to digital gold. It has not matched gold's value. Bitcoin is more like a collectible now. I think this is similar to gold. People who first found gold use it as a collectible.

All over history our ancestors are fascinated with gold but story was that its the alien that seeks help they created humans to do the labor of mining gold for their purpose. People are offering gold to gods. And study shows that when gold are heated in a microwave, a component of it travels fast allowing time travel. But this is going to be a fictional story to you.  I've read an article about China about to create a gold backed currency too.


Gold is rare and can be used to adorn individual like the kings and queens which is why its valuable in history and they were traded and turned useful to barter.  Before fiat were declared by Nixon to be just fiat, money was backed by gold. Bitcoin is backed by the power/electricity staked by miners by POW to make it secure.

Bitcoin has a quite definite use case, it was created to be a superior alternative to fiat currencies, it is not necessary to try to reinvent the wheel. It is reliable, hard money that cannot be censored.

What else do you want from a currency?


We are still in the early phases, I still do not understand how there are people who want to find hard money elsewhere, it is the last chance they have to take the train to the success of several generations.

I'm not making a case against Bitcoin as money. I'm searching for a way for Bitcoin to become money. Bitcoin already has a use case, digital gold. But for it to become widespread money, we are not there. People have been searching for use cases through things that are built on top of Bitcoin: 2nd layer, side chain, smart contracts. There's Litecoin as digital silver. People are trying to make "better" altcoins.

My point is we've been searching in the wrong direction. For gold, it wasn't the jewelry use case that made gold money. It was the "dumb" metals like copper, bronze, and iron.

Comparing Bitcoin with gold is not ideal, moving gold is too expensive, you need protection to move gold, plus you have to pay exaggerated commissions and there is always a price difference for buying and selling that makes you lose money if you want to sell instantly. Gold is only interesting to buy/sell digitally and that's not gold, so Bitcoin is better.

Gold has been around for years now, my grandma and mother really loves jewelry so I could say that I grew up with it. Let's say that gold has a proven track record since it exists many years before and even without fiat you can actually buy something using gold as long as it is real gold and it is accepted by most establishments, mainly pawnshops  ;D I haven't seen someone bravely pay their commodities using gold though as it needs to be exchanged to fiat first.

For Bitcoin, in my opinion, the market is still young for it. In my country, establishments who accept it is very rare  ;D Probably if Bitcoin remains stable and would be around for years, we can definitely use it as money or form of payment just like gold.

With Bitcoin functionalities and with the support of many investors and users  Bitcoin become valuable assets. From that same with how gold went thru, the people who understand the system will also be the same person that will bring Bitcoin to be use as how fiat system had been used. The concept will be able to materialize as there's value upon this assets.

before knowing human gold used a barter system in buying and selling. then humans develop and find gold. gold is a type of metal that has good characteristics, does not rust, has a good color and is easy to shape. so almost everyone likes gold. because everyone likes it, gold is used as a medium of exchange
and became a currency. And later, fiat money and gold were discovered. At present gold is no longer used as a measurement tool. so I am optimistic that when bitcoin and cryptocurrency are in bulk then crypto will probably replace fiat money.

This type of comparison between gold and Bitcoin is not brought any special importance to this platform because both have different acceptability to the different users, you can't compare between Gold and Bitcoin because Gold is the established element of investment or saving whether the Bitcoin is still struggling for its existence, I also want to say that Gold has been used as a precious material from the very beginning of the human civilization but Bitcoin is not like that, Bitcoin is only used on the Internet platform but Gold is using wherever you go around the world, so I don't like the comparison between Gold and Bitcoin.

It could be possible in a sense that bitcoin has its own practical purpose just like gold has. In comparison, Gold is used to build different products such as computer CPU, jewelries, and can also be used as a currency to store money. In bitcoin, it has a practical purpose in a sense that people are directly using it as a means of transaction, and also as an investment where they keep their money into. Thus, both Gold and Bitcoin share similar practical purpose, it is highly evident that bitcoin today could be as important as gold.