The Illusion of the Infallibility of Gold as Money

[gohan]

Maybe a useless philosophical rambling, but the objective value in our universe is potential energy (low entropy). From this perspective, a lot of things have value, including matter, which is actually very scarce. From a human standpoint, matter is more convenient to use and it's even better if it's stable. Gold is the heaviest element (most potential) that is stable. Early humans didn't know all this, and they decided on gold anyway. I don't think it was a coincidence (the fact that it's a noble metal makes it easier to find in a pure form, and the heaviest the more scarce, etc.). I'm not a physicist/chemist so please correct me if there's anything wrong above.

Of course, we're not able to convert matter into energy at will, so use value stays somewhat disconnected from the objective value (not totally disconnected since scarcity of an element is just because of that, but for instance, uranium should (and probably is going to) be, more valuable than gold).

However it's at least possible to make the connection for gold. How about Bitcoin? It would be much easier if bitcoins consisted of the energy put into solving problems, but since bitcoins are not the solutions but gifts given to the nodes which solve those problems, they're almost unrelated to the energy put in them. Actually the relation is reverse; the energy invested in them are proportional to their exchange value (since production rate is constant, higher the production power you can buy with bitcoins, harder it gets to produce them, so that the average profit from producing bitcoins stays the same in bitcoins), which comes from demand. It's only demand (and technicalities about how the network, exchange systems and generating nodes operate) which determines its exchange value.

So I guess in the end, it's the same as any currency we currently use. The only difference is that it's not officially regulated and it's only demand that shapes its exchange value. Does this means more fluctuation? What else does it imply? Do we need to wait and see some serious economics papers written on bitcoin? Are there any?

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[grondilu]

Maybe a useless philosophical rambling, but the objective value in our universe is potential energy (low entropy). From this perspective, a lot of things have value, including matter, which is actually very scarce. From a human standpoint, matter is more convenient to use and it's even better if it's stable. Gold is the heaviest element (most potential) that is stable. Early humans didn't know all this, and they decided on gold anyway. I don't think it was a coincidence (the fact that it's a noble metal makes it easier to find in a pure form, and the heaviest the more scarce, etc.). I'm not a physicist/chemist so please correct me if there's anything wrong above.

http://www.npr.org/blogs/money/2010/11/18/131430755/a-chemist-explains-why-gold-beat-out-lithium-osmium-einstein

[Anonymous]

How's silver? Silver can be synthesized I'm assuming?

[Hal]

I wouldn't be surprised if in 30-50 years they were able to genetically engineer some sea organism to extract gold from seawater and concentrate it in their shell, as they do with calcium and other elements now. I think Bruce is right, in the long run gold is doomed as a source of value.

[grondilu]

I wouldn't be surprised if in 30-50 years they were able to genetically engineer some sea organism to extract gold from seawater and concentrate it in their shell, as they do with calcium and other elements now. I think Bruce is right, in the long run gold is doomed as a source of value.

Even if it was possible, and I think it is, it wouldn't change much.   It would just be a different kind of gold mining.

[imanikin]

How's silver? Silver can be synthesized I'm assuming?

Both gold and silver are elements of matter, which means that there is a unique number of nuclear particles - protons and neutrons - in their atoms that make them those elements. The protons and the neutrons are held together with nuclear forces.

Matter cannot be created out of nothing. So, to "synthesize" gold or silver out of some other element, one would need to change that number of particles in each atomic nucleus, and add the right number of electrons to each atom also, which would not be trivial...

[Garrett Burgwardt]

Adding and subtracting electrons is easy, it's the removal/addition of protons and neutrons that's the tricky part 

[grondilu]

Adding and subtracting electrons is easy, it's the removal/addition of protons and neutrons that's the tricky part 

It can actually be done, but it requires a particle accelerometer.

Also, if you detonate a H bomb next to a kilogram of lead, I guess you might create a few atoms of gold.

[MacRohard]

Adding and subtracting electrons is easy, it's the removal/addition of protons and neutrons that's the tricky part 

It can actually be done, but it requires a particle accelerometer.

Also, if you detonate a H bomb next to a kilogram of lead, I guess you might create a few atoms of gold.

http://en.wikipedia.org/wiki/Synthesis_of_noble_metals

It might happen one day.. see what they say about silver;

Silver is produced as result of nuclear fission in small amounts (approximately 0.1 %). Because of this, extraction of silver from highly radioactive fission products would be uneconomical, but when recovered with palladium, rhodium and ruthenium (price of silver in 2005: about 200 €/kg, rhodium and ruthenium: about 300,000 €/kg) the economics change substantially. Silver becomes a byproduct of platinoid metal recovery from fission waste.

if you're reprocessing nuclear fuel anyway might as well try and get everything out.. I doubt large amounts of any element will ever be derived from this source (spent nuclear waste) but it seems that it is possible to do it profitably.

[gohan]

if you're reprocessing nuclear fuel anyway might as well try and get everything out.. I doubt large amounts of any element will ever be derived from this source (spent nuclear waste) but it seems that it is possible to do it profitably.

As a byproduct, maybe, but using fission to convert heavier elements to lighter ones just because they're precious for this brief time being is an unconscionable waste IMHO.

[grondilu]

As a byproduct, maybe, but using fission to convert heavier elements to lighter ones just because they're precious for this brief time being is an unconscionable waste IMHO.

If it is profitable then it is not, by definition, a waste.

[markm]

Quote "If it is profitable then it is not, by definition, a waste."

Don't let's get started on that outside the Economics section.

-MarkM- (Other than to blithely claim it is to me a very dubious assertion (no date of calculation of bottom line, possibly other points))

[cardinalshark]

gold is the perfect store of value. It has uses, but compared to the amount of gold that is in above-ground storage, very few uses. The primary uselessness of gold is its value. Any store of value should be pretty much useless.

Bitcoin is a medium of exchange. Gold is a store of value. Different things. No reason why they should be the same. Even in the 19th century when precious metals were used as money, gold was often used to store value, while silver was used more as a medium of exchange. This has actually been the case since ancient times.

Gold isn't money today but it is darned close. Proof is that central banks hoard gold. End of story. They believe in fiat so much that they are net buyers of gold, not sellers.

Bitcoin is an almost perfect medium of exchange but I wouldn't want to store my wealth that way.

[barbarousrelic]

Bitcoin is a medium of exchange. Gold is a store of value. Different things. No reason why they should be the same. Even in the 19th century when precious metals were used as money, gold was often used to store value, while silver was used more as a medium of exchange. This has actually been the case since ancient times.

A medium of exchange needs to also be a store of value, or else nobody would voluntarily accept it (without a legal framework requiring it.)

Regarding your example of silver being a medium of exchange while gold was a store of value, silver also stores its value.


A store of value, however, need not be a medium of exchange.