Bitcoin versus Gold

We are living in an age of currency debasement. It is very important to understand this and we need to understand some history. During the time of the Roman Empire, the currency was the denarius. Originally, the silver used was nearly pure, weighing about 4.5 grams. From time to time, this was reduced. During the Julio-Claudian dynasty, the denarius contained approximately 4 grams of silver, and then was reduced to 3.8 grams under Nero. The denarius continued to shrink in size and purity, until by the second half of the third century, it was only about 2% silver, and was replaced by the Argenteus.

Today, the bulk of the money is either numbers on your bank account or pieces of paper. Most countries debase their currencies. By debasing their currencies, governments believe they can meet their financial obligations more easily or have more money to spend on infrastructure and domestic spending projects to spur the economy.

Debasing the currency weakens it, and it may come as a bit of a surprise but most governments would rather have a slightly weak currency than a slightly strong currency. Weaker currencies boost exports. If you are a South African company and you export $100,000 worth of goods, you will receive R1.6 million if the Rand is at 16 to the dollar. If the Rand weakens to 18, you will receive R1.8 million. Secondly, a weaker currency forces countries to export or sell more (as you could see from the above example) and to buy less because they are more expensive. This will help countries reduce their trade deficits. Finally, if the government has lots of local currency debt, it is in its best interest to debase the currency because the servicing of this debt becomes less expensive over time.

Currency debasement is not good for investors because it eats away at the value of their investments. Smart investors, therefore, look to alternative currencies. Up until 10 years ago, the most common option was gold. Today, there is another option - cryptocurrencies. In this blog, we are going to compare gold and Bitcoin as monetary assets.

To kick off, currencies need to display the following EIGHT characteristics. They must be:

  • Durable

  • Portable

  • Fungible

  • Verifiable

  • Visible

  • Scarce

  • Established history

  • Censorship resistant

Civilization rises through channeling energy. We invented fire, then we build cities near rivers, and we used gravity to move water and create energy and electric systems. We then invented batteries as a means of storing energy. If we want to advance we need to be able to capture, store and channel energy. Money is energy. It is the store of value and also a technology that allows us to trade that energy over time and space. If we look at the history of money, we have gone from commodity money, to coinage, to notes to fiat currency and now we have cryptography as a basis for money. Sometimes it is said that gold is ideal money. If God came down from heaven to create ideal money it would be based on Luca Pacioli's system of double-entry system of accounting. He would create 21 million units that were infinitely divisible. There are 100 million Santoshi in one bitcoin which means that one Santoshi is worth less than 1/20th of a US cent which is about 1 South African cent - this shows how almost infinitely divisible Bitcoin is for commercial transactions. The perfect money would be able to settle transactions between parties located anywhere on the planet instantly. That would be good money and that could be called God coin because transactions are instant and never lose any information in the process. Bitcoin comes pretty close to this. Bitcoin is the most efficient monetary system we have ever seen. 21 quadrillion Santoshis, 350 thousand transactions per day, it costs about 10 basis points of the monetary network to clear those transactions and secure that network.

Bitcoin is the best-returning investment of the 21st century and has delivered an annualized return of 267 percent since its inception. The transaction that first gave Bitcoin monetary value was in October 2009, when Finnish computer science student Martti Malmi, known online as Sirius, sold 5,050 coins for $5.02 giving each Bitcoin a value of 0.0009 dollars. Amazon listed at 9 cents per share - 100 times more expensive than Bitcoin in 1997. It has delivered an annualized return of 32 percent. Tesla was listed in 2010 and has an annualized return of 52 percent.

We digitized our photos, our movies, and our music and it makes sense that the next thing to digitize is our money and assets. Money is collapsing under the weight of inflation and the printing of money. Gold is not a solution. You are not going to be able to distribute small pieces of gold to billions of people.

What engineering elements drive humanity? You cannot build a skyscraper without steel. You cannot build a bridge without concrete. Gold is not a perfect monetary asset - it does not meet all the requirements at the top of this.

Gold is element 79. It is ideal as an ornamental metal. It is attractive, indestructible, and malleable. It is great for jewelry but it is not a perfect monetary asset. You can inflate gold, and confiscate gold, it is immobile, not easily divisible and you can counterfeit it. It shows up in the economy in lots of different forms - coins, bars, and jewelry.

Bitcoin is not just an asset but also a network and protocol. It is the first globally self-settled real-time clearing bearer instrument. It is all the 8 things mentioned above as the perfect store of value.

If you look at the universe of investable assets - stocks, bonds, property, gold, and other precious metals, you are looking at a market value of 500 trillion dollars. The big question is that if you have 1 million in investments, how sure are you that this investment will be able to buy the same things in 100 years? In other words, what would the buying power of that money be after 100 years? For example, if you buy a city block in Manhattan you could say with more or less certainty that the value of that city block will go up in 100 years as more and more people move into New York. The negative is that this block is going to be taxed by the mayor of Manhattan, there is going to be zoning regulation, it is going to be taxed by the state of New York, and there is also the risk that politicians want to turn that block into a park and they may take it from you and pay you below market rates. So property as an investment is great but you will need to fight to maintain the value of that property over 100 years, and your children's children will have to fight. If you hold that 1 million dollars in cash, you need to be aware of the dilutive power of the Federal Reserve. They are increasing the money supply by 7 percent per year which means that over 100 years, those cash notes will lose 99 percent of their value. If you put 1 million dollars of gold in a box and bury it in your garden, you have to worry about the government seizing the gold. The problem with gold is that we are increasing the supply by 2 percent every year as new gold is mined and this means the half-life of gold is 35 years - over that period of time it will lose half of its value. The economic energy that is being stored in that box of gold is dissipating at approximately 2 percent per year - better than cash notes but not optimal. Over 100 years you will only be left with 12.5 percent of its value. Gold is more portable than an office block in Los Angeles, but you are not going to be able to move 1 million dollars worth of gold through an airport anytime soon.

Another investment is buying all the shares of a football team. There is a cultural risk here - what happens if there is a massive shift in culture in 100 years and people lose interest in football and prefer to watch flying cars racing around the city skyscrapers? You could own 1,000 acres of land, but what happens if your biggest enemy becomes governor of your state and sets the tax so high on your land that it is taxed away from you? There is an old saying that they lost the family farm because they were unable to pay the property taxes. If you are a rich family in New York, the reason you maintain your wealth is by renting it out, paying the taxes, maintenance and maintaining favour with the powers that be. Historically the families that do this best are the sovereigns - think about the Windsors in the United Kingdom. The Crown Estate owns 3 percent of the property in the UK. It is the third largest property owner in the UK with almost 700,000 acres.

The great thing about Bitcoin is that it meets the needs of 8 billion people. Most people are not able to buy 1 percent of a hotel in Miami, or 0.23 percent of a Picasso. Bitcoin offers property rights at any scale and you don't need to worry about whether Picasso will still be in vogue in 20 years or will people still visit Miami in 50 years? was

Are you too late to get into Bitcoin? Not at all. People thought it was too late to get into Google when it listed. It is up over 3000 percentnation-states, . Google is now more powerful than many nation states.

Bitcoin represents a massive paradigm shift. It is the digital transformation of money, property and energy. It is transforming the world and many people are not aware of what is happening under their noses because they are so fixated on their paradigms.

We live in a globalized economy. We are 8 billion people but it is difficult to trade with each other. A company in Bolivia wants to do business with a country in Ghana. Bolivia uses the Boliviano and Ghana uses the Cedi. Neither is the dollar and neither company is allowed to have a dollar account. Assume the Ghanaian company wants to pay the Bolivian company. They need to convert Cedi to US dollars using their central bank and a corresponding bank in the US registered with the Federal Reserve. A swift instruction is sent by a bank employee that does not speak good English to the US bank who then needs to convert the dollars into Bolivianos and communicate with a bank employee in La Paz who only speaks Spanish. This could take days if not weeks to complete. By this time, let's assume the goods to be exported from Bolivia to Ghana are perishable. They are sitting in a warehouse waiting to be transported but losing value every day. This is a far from ideal situation. There is a simple solution and that is crypto in general and Bitcoin specifically.