December 6, 2022

Bitcoinist Book Club: “The Bitcoin Standard” (Chapter 3, Part 1: Why Gold?)

4 min read

Welcome back, Bitcoin fans! For those who’re simply tunning in, we’re presently exploring “The Bitcoin Standard” by Saifedean Ammous. When we end up with the third chapter, you’ll understand precisely why humanity selected gold as the most precious of metals and its kind of cash of choice. The reasons are unarguable. Mankind was incredibly clever to do so.

Nevertheless, you need this information prior to we enter it.

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About The Coolest Club On Earth

The Bitcoinist Book Club has 2 various usage cases:

1.- For the superstar-executive-investor on the run, we’ll sum up the must-read books for cryptocurrency lovers. One by one. Chapter by chapter. We read them so you don’t need to, and give you simply the gold-y bits.

2.- For the meditative bibliophile who’s here for the research study, we’ll offer liner notes to accompany your reading. After our book club surfaces with the book, you can constantly return to refresh the ideas and discover important quotes.

Everyone wins. Gold medals.

Up until now, we’ve covered:

  • “The Bitcoin Standard” (Prologue and Chapter 1)
  • “The Bitcoin Standard” (Chapter 2: Primitive Moneys)

Let’s start with “Chapter 3: Monetary Metals.

Gold, person bathed in Metals made obsolete the”artifact money “we deep-dived into in the previous chapter. Coins were much easier to carry, extremely merchandisable, accepted everywhere, and resistant to all sort of weather. Also, the problem metal mining provided at the time made it difficult to increase the supply significantly enough.

After an experimentation period, humankind settled on three. Gold for severe transactions, silver for day-to-day life, and copper for small deals. Those metals were unusual enough, and, “Gold’s virtual indestructibility, in specific, allowed human beings to store value throughout generations, therefore permitting us to establish a longer time horizon orientation.

Metal coins were “the prime form of cash for around 2,500 years.” Specifically gold coins. Nevertheless, the system was flawed. First off, the price of those three metals varied, making it tough for people to monitor what they owned. The most unstable was, “silver, which experienced declines in value due to boosts in production and drops in demand.”

The most significant flaw, however, was that “federal governments and counterfeiters” could decrease the metal material of these coins, thus decreasing their purchasing power. This early kind of decline transferred a few of the worth of each coin to whoever kept the missing out on metal. The genuine issue, though, was that “The decrease in the metal content of the coins compromised the pureness and stability of the cash.

Go into paper (backed by gold)

Technology and sophistication lead humanity to paper. As time went by, people started negotiating with “checks backed by gold in the treasuries of their banks.” This made silver obsolete due to the fact that it made gold definitely divisible. Nevertheless, the system had a “tragic flaw” that echoes into the present:

By centralizing the gold in the vaults of banks, and later on reserve banks, it made it possible for banks and federal governments to increase the supply of money beyond the quantity of gold they held, cheapening the cash and transferring part of its worth from the cash’s genuine holders to the federal governments and banks.

Gold price chart for 05/29/2021

 Gold cost chart on IDC |

Source: XAU/USD on TradingView.com However seriously, why gold

? Mankind attempted it all and made its choice. The outright triumph of gold had two chemical causes:

First, gold is so chemically steady that it is virtually impossible to ruin, and 2nd, gold is impossible to manufacture from other materials (alchemists' claims regardless of) and can just be drawn out from its unrefined ore, which is very uncommon in our world.

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And nowadays, the reasons are more solid than ever. Gold is practically unbreakable, so, nearly everything that we've drawn out from the earth is still around.

This all indicates that the existing stockpile of gold held by people all over the world is the product of thousands of years of gold production, and is orders of magnitude larger than new annual production.

And that implies that it's "practically impossible for goldminers to mine amounts of gold large enough to depress the price considerably." That extreme trouble in production makes gold "difficult cash." And the metal is still limited enough to be sound money and a smart financial investment.

You'll have to figure out how to store it and keep it safe, of course, but a wise investment however.

Next time, we'll complete chapter 3 by exploring how did this procedure played out. Historically speaking.

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