“Busy, busy, busy” – Kurt Vonnegut
Simple and obvious explanation why hard capped Cryptocurrency like “Bitcoin” are fundamentally different from Gold.
As you may or may not know Gold is created like any other heavy/complex metals, as a factor of the mechanisms of functions of the universe http://en.wikipedia.org/wiki/Gold , on earth humans have been finding gold and utilizing it for many different purposes.
it is agreed that gold has value, the value it has is agreed upon by us humans because of a number of “faith and confidence” reasons on of those relates to a “limited supply.”
however that “limited supply” is continual, that is to say if Gold kept rising in value in relation to all other assets or currency (means of exchange) , we humans as resourceful as we are would find Gold in extreme cases off the planet.
so it’s easy to assume that the universe is littered with Gold, we could reasonably expect that where we find other “complex” heavy metals we will find also Gold in the universe.
But wait, what about if there was actually no more gold anywhere in the universe ?
would gold , this yellow metal that is exclusive to Earth suddenly become the most valuable object in the universe?
or would it become a “rare curiosity” (as long as it had no amazing special properties) as its utilization would continually shrink ?
Money is Energy
once you understand what “money” is you will figure out that money is just an “energy token” the Lego movie humorously made that the abstract point of that movie when it tried to explain that “money is worth what we think it is worth” or “the value that we create”
So lets follow this path:
1. So if we assumed that Gold did not exist outside of Earth
2. We assumed that only gold was money.
(admittedly two unlikely narrow views) (but stay with me here)
We would be saying:
all the human energy in the universe is limited to this fixed product.
clearly a bizarre and very incorrect statement.
Bitcoin basically makes that statement.
Bitcoin is a Cryptocurrency that has a “hard Cap” of 21 million units, this Hard Cap is as credible as the Bitcoin block-chain is credible, that is to say if it does not stand then the blockchain has been corrupted or “hard forked” (purposely changed)
Bitcoin is just an energy token, of which faith is derived from a communal blockchain (a public crypto ledger) which is pseudo anonymous and public, also secured by encryption.
however the economic absurdity still holds as regards the statement in reference to Gold , because a public Ledger and decentralization does not fundamentally change the nature of human trade of energy.
so the Bitcoin statement is:
all the human energy in the universe is limited to this fixed 21 million units.
then the argument usually follows: “Crypto currency is divisible down to the 8th decimal so then value can be affixed to tiny amounts of crypto currency.”
and I would retort that with :
“The universe is a big place”
I would make the bet that (humans being humans) will not keep valuing a shrinking supply of available energy tokens higher and higher, especially in a field of universal competition, remembering value is “what we make it” or basically “what energy we attach to it” and this balance will be found in a “fixed and available” system.
All Money” is an “energy token.”
Gold is not hard capped it is littered all though the universe.
Quark is not hard capped it is found “all though the universe” also.
Because of the “hard numbers” of mathematics Bitcoin seems to be making a bizarre statement about limitation of available energy tokens.
The brave assumption Bitcoin makes is that because of hard numbers humans will attach higher values to smaller and smaller units of the energy token, this seems to me like a “lucky dip” or some other Game-show side trick.