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The Bitcoin Bullish Thesis (II)

The attributes of a good deposit of value

When the “value deposits” compete with each other, it is the specific properties of each that tip the balance towards one or another currency, gradually increasing the demand of the winner. Although different goods have been used as a value deposit or “proto currency”, certain attributes have been more demanded, allowing the goods that possessed those attributes to displace the rest.

The ideal value deposit should be:

Durable : It should not be corrupted or easily destroyed. For this reason, wheat is not a store of ideal value.

Portable : It must be easy to transport and store, allowing to protect it from a possible loss or theft and at the same time facilitating its exchange over long distances. A cow is less ideal than a gold bracelet.

Interchangeable : Any of its units must be able to be replaced by another without its value being modified. Without this attribute we can not solve the problem of “double coincidence of needs” (explained in part 1 ). In this sense, gold is a better deposit of value than diamonds, which differ from each other not only in their form but also in their quality.

Verifiable : Your authenticity should be able to be verified quickly and easily.Checking in a simple way that the piece is authentic gives confidence to both parties of a transaction, increasing the chances of it being carried out.

Divisible : A unit should be easily subdivided into smaller units. Although this attribute was less important for primitive societies where trade was less frequent, it was gaining importance as trade expanded and the quantities to be exchanged became smaller and more precise.

Shortage : As defined by Nick Szabo, a monetary good must have an “unforgeable cost”, that is, the good must not be abundant or easy to obtain or produce in quantities. Scarcity is perhaps the most important attribute of a store of value due to the innate desire of humanity to treasure what is rare. It is what really makes a valuable store valuable.

Established history : The longer society believes that an object is valuable, the more interesting it is to store wealth. A “lifetime” deposit will be difficult to replace with a new one, unless the force is used or the new asset has significant advantages among the attributes mentioned above.

Resistant to censorship : In our digital society, where we are increasingly monitored, this is a new attribute that has gained importance. It refers to the difficulty for a third party, such as a corporation or government, to expropriate the property or prevent the owner from using it. Goods that are resistant to censorship are perfect for those who live under regimes that impose controls on capital or prohibit other forms of trade.

The following table compares bitcoin , gold and a fiat currency (such as the dollar) according to the attributes mentioned above. Next we will explain the reason of each score:

Bitcoin vs. gold vs. fiat currency


Gold is the undisputed king of durability. The vast majority of gold that has been mined or monetized, including the gold of the Egyptian Pharaohs, still exists and will most likely remain available within a thousand years. The gold coins used as money in antiquity still hold significant value. Fiat money and bitcoin are fundamentally digital records that can take physical form (such as paper money or banknotes). Therefore, it is not the durability of its physical manifestations that we must consider (a damaged dollar bill can be exchanged for a new one), but the durability of the institution that issues it.

In the case of fiat currencies, many governments came and went with the passage of time, and their coins disappeared with them. The bills of the Weimar Republic lost all their value because the institution that issued them no longer exists. If we look at the history, it would be naive on our part to think that the fiat coins are durable in the long term, with the American dollar and the English pound being a couple of anomalies in terms of durability. Bitcoin is not issued by any institution, so we consider that its durability is conditioned to the existence of the network that protects it.

As bitcoin is still in its infancy, it is soon to draw conclusions regarding its durability.However, there are encouraging signs, because despite the attempts of several governments to impose regulations and continuous hacker attacks for years, the network continues to function, demonstrating a certain degree of “anti-fragility”.


Bitcoins are the most portable repository of value that has ever existed. Private keys representing hundreds of millions of dollars can be stored in a small USB device and easily transported anywhere. Moreover, equal amounts of value can be transferred almost instantaneously between people at opposite poles of the planet. Fiat coins, being fundamentally digital, are also highly portable. However, government regulations and capital controls imply that transfers of large quantities take days or are even impossible.

Cash can be used to avoid capital controls, but the risk of storing it and the cost of transporting it becomes significant. Gold, being physical and very dense, is by far the least portable. Transferring gold over long distances is expensive, risky and slow. This is why the lots of gold are rarely transported, and when they are used in transactions, what is transferred is the property title and not the gold itself.


Gold is the ideal model in terms of interchangeability. When it melts, an ounce of gold is indistinguishable from any other ounce, and as such gold has always been traded in the markets. On the other hand, fiat currencies are interchangeable insofar as the issuing institution allows it. The normal thing is that in the markets a fiat ticket is treated like any other by the merchants, but there are cases in which the high denomination notes are treated differently than the lower value notes.

For example, the Indian government, in an attempt to end unofficial markets where taxes are not paid, decided to demonetize its 500 and 1000 rupee notes. The demonetization caused the 500 and 1000 rupee notes to be quoted at a lower value than the printed one, reducing their interchangeability by other lower denomination notes. Bitcoins are perfectly interchangeable at the protocol level: each bitcoin is treated in the same way as another bitcoin being transmitted by the bitcoin network.

However, since bitcoins are traceable in the blockchain, a bitcoin in particular could be “dirty” when used in illicit trade and other merchants and exchange houses may feel obligated not to receive “dirty” bitcoins. Without improvements to the privacy and anonymity of the bitcoin network protocol, bitcoins can not be considered as interchangeable as gold.


In most cases it is easy to verify the authenticity of both gold and fiat coins. Even so, despite the application of measures to prevent the falsification of banknotes, states and their citizens run the risk of being deceived by counterfeit bills. Gold is also not immune to being falsified. Sophisticated criminals have used gold-plated tungsten to trick investors into thinking they were buying real gold.

Unlike gold and fiat currencies, the authenticity of bitcoins can be verified with a mathematical certainty. Who owns bitcoins can demonstrate the amount of bitcoins they have using cryptographic signatures.


Bitcoins can be divided up to one hundred millionth of a bitcoin and transferred in those minimum amounts (although network commissions can make it very expensive to transfer very small amounts making them economically unviable). Fiat money is typically divided into small (exchange) currencies that have very little purchasing power, so it can be said that their divisibility in practice is sufficient. Gold, on the other hand, although it can be physically divided, is difficult to use in such small quantities as to be useful on a day-to-day basis.


The attribute that most clearly distinguishes bitcoin from fiat currencies and gold is its predetermined scarcity. By design, only 21 million bitcoins can be created. This allows those who own bitcoins to know with certainty what their percentage of the total amount is. For example, the owner of ten bitcoins knows that no more than 2.1 million people on the planet (less than 0.03% of the world’s population) can have as many bitcoins as he does.

Although gold remains historically scarce, it is not immune to increases in its total amount. If a new method were discovered to mine or produce gold that was economically viable, the supply of gold would increase dramatically (for example mines on the seabed or on asteroids).

Finally, although fiat money is a relatively new invention in history, it is proven that the amount in circulation tends to suffer constant increases. Governments of all kinds have shown that they can not resist the temptation to apply inflationary measures to their currencies to solve short-term political problems, so the holders of these currencies are certain that the value of their savings will decrease over time. .

Established history:

No monetary good has such a long and well-known history as that of gold, which has been treasured ever since human civilization exists. Today, old coins still hold significant value. At the other extreme we have the fiat money, which is a recent historical anomaly. Since its invention, fiat coins have tended to lose all their value over time, practically in all cases.

The use of inflation as an “invisible” way to collect taxes from citizens is so politically profitable that few nations in history have been able to resist. If the 20th century, in which fiat money asserted its dominance over the global monetary order, has established some economic truth, we can not trust that fiat currencies will maintain their long-term value, or even in the medium term. Despite its short existence, Bitcoin has overcome so many tests in the markets that there is a high possibility that its value as an asset does not disappear in the short term.

Moreover, the Lindy effect suggests that the longer it survives, the greater will be society’s confidence that it will continue to exist in the future. In other words, the confidence of society in monetary assets has an asymptotic nature, as the following graph illustrates:

Bitcoin vs. gold

If bitcoin exists for 20 years, there will be an almost universal confidence that it will exist forever, just as people believe that the Internet is a permanent feature of the modern world.

Resistance to censorship:

In the beginning, one of the main uses of bitcoin was the illicit sale of drugs.Therefore, many people mistakenly assumed that the primary demand for bitcoins was due to their apparent anonymity. Actually bitcoin is far from being an anonymous coin: every transaction transmitted by the bitcoin network is recorded forever in a chain of blocks (blockchain) public. The historical record of transactions allows a forensic analysis to identify the origin of a flow of funds. A similar analysis allowed the arrest of one of those responsible for the famous robbery of MtGox.

While it is true that a sufficiently diligent and careful person can hide their identity by using bitcoins, this is not the reason why this currency was so popular in drug trafficking. The key attribute of Bitcoin that makes it interesting for use in prohibited activities is that it does not require any permission at the network level. When bitcoins are transmitted in the bitcoin network there is no human intervention deciding whether or not to allow a certain transaction.

Being a network between peers (p2p) and distributed, bitcoin is designed to be resistant to censorship by nature. This contrasts radically with the current banking system where states regulate banks and other guardians of the flow of money, forcing them to report and prevent prohibited uses of monetary assets. A classic example of regulated money transfer is capital controls. For example, a millionaire may find it very difficult to transfer his wealth to a new home if he wants to escape an oppressive regime.

Although gold is not issued by any state, its physical nature makes it difficult to transfer remotely, making it more susceptible to state regulations than bitcoin. The Gold Control Act in India is an example of such regulations.

Bitcoin scores remarkably well on most of the benchmarks we have used. This allows it to compete with advantage over other modern and old monetary goods, offering a strong incentive for its increasing adoption. Particularly the powerful combination of resistance to censorship and absolute scarcity are a powerful reason why many investors place a part of their wealth in this new asset.

Vijay Boyapati

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