Gold & Bitcoin

Gold & Bitcoin

Since many of the same arguments involving Bitcoin have applied to gold as well, such as debate over whether either of them are commodities or currencies, let’s just classify them by their most basic properties.

Gold – physical element. Bitcoin – abstract protocol.

On one hand, gold can act as currency, but it can never be a purely abstracted item. From the other side, Bitcoin has functioned similar to a commodity, but it will never have a true physical presence.

We have the focal point anchored on both sides, gold in the physical realm and Bitcoin in the abstract. They come so close that they are nearly interchangeable.

Now, the currently assumed position of gold is at the very base of the financial world, according to John Exter‘s Pyramid.

This is a powerful concept, highlighting the basis of financial development and gold’s role as the supreme intermediary between the abstract and real components of an economy. What’s curious is that gold is the closest thing to a purely independent financial instrument – it is an approximation of a monetary ideal. In other words: human utilization of gold has placed it in a position where it straddles the two worlds of abstract monetary concepts and real, physical objects.

Some difficulty is apparent with Exter’s Pyramid in general. Everything in the liquidity range is monetary. Real estate, physical commodities, and gold are not abstract. When buying or selling real estate, the monetary element is an agreement or contract between various parties, not the physical structure or land itself. Gold, and other precious metals, find themselves in a twilight area in which they are physical but act as abstract concepts. History has shown that this can only last so long before the dichotomy between abstract and real produces a shearing force.

Enter Bitcoin. The structure of this phenomenon is such that it is functionally similar to gold, but has no absolute corporeal presence. Its abstract, intangible nature secures it firmly in the monetary realm. This means that a shift in thinking may be in order, adjusting the arrangement of Exter’s Pyramid yet again. Considering the real estate and physical commodities section as referring to the contracts for those assets, the new form includes Bitcoin.

Now we have the focal point anchored on both sides, gold in the physical realm and Bitcoin in the abstract. They come so close that they are nearly interchangeable. Money is a language of sorts, and with translation among different languages, the ideal is to come as close as possible in meaning for both sides. Bitcoin does this from the opposite perspective that gold has offered for thousands of years.

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Favorite Quote: "Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value" - Eric Schmidt, CEO of Google

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