How Gold Became Money and How Bitcoin Can Become Money

[dnprock]

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

[TinaK]

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

[fiulpro]

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.

[jameshugo17]

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?

[dimastegar]

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.

[Ayiranorea]

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.

[Velkro]

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

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.

[Ann1989]

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.

[CryptoBry]

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.

[avikz]

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.

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!

[pooya87]

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,...

[Eugenar]

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.

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.

[smartbitcoininvestor]

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.

[hatshepsut93]

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.

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.

[Furious 7]

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.

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 .

[Wysi]

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.

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.

[blockchainmarketing]

Good article!
Thanks!

[bitcampaign]

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

[slaman29]

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.

[Darooghe]

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.