Bitcoin’s continuing failure to substitute for gold

Bitcoin maximalists think Bitcoin is the perfect substitute for gold. Not even gold fans listen to them.

The following chart was posted to Medium on 27 February 2018 by Vijay Boyapati, in “The Bullish Case for Bitcoin (part 2 of 4),” making the case for Bitcoin as a store of value:



It appears to be based on this blog post from 2013, and Bobby Lee has used a chart like this in presentations since at least 2017.

Anyone can make a comparison chart that just happens to make their favourite thing look wonderful. But even the listed comparisons don’t hold:

  • B for durability is not plausible. In real-world use, Bitcoin has proven incredibly brittle and prone to loss from human error.
  • “it’s me, the guy who gives Bitcoin an A+ for divisibility since I can send 1 satoshi if I want (for the low low price of $1+ transaction fee)” — Toby Pinder
  • Fungibility is affected by Bitcoin’s stupendous traceability — individual bitcoins are ridiculously more traceable than individual dollars.
  • The traceability also hampers its censorship resistance — I can send bitcoins from one address to another and nobody can stop me, but I could be busted any time after that, even years later, from Bitcoin’s handy built-in immutable log of prosecution futures.
  • Cryptocurrencies rate D- on scarcity, as I’ve noted previously — Bitcoin is only like gold if you could create new gold mines any time by cut’n’paste.

In the real-world crypto markets, the different cryptos function as one big pool. People trade them interchangeably — Bitcoin remains the biggest, but it’s just one of many. The consumer markets — meaning the black markets, such as the darknet drug markets — routinely switch currencies as old ones become less usable. The market doesn’t care about your ideology.

Anyone can inflate the pool of cryptos at any time. The just-printing-money that bitcoin ideologues claimed as the natural fate of conventional fiat currencies … is already the situation in cryptos.

The chart also appears to have clipped off the line “actually used by people to buy things.” And the line “Number go up!”

The target market: gold obsessives

The only people who care that much about gold are goldbugs. As I wrote in chapter two of the book:

The gold standard — an economy with a finite money supply — was accepted mainstream monetary policy up to the early 20th century, when the debts from World War I made it infeasible. Even the winners in World War I tried to back all the paper (that the economy had actually run on since the late 1600s) with gold until the 1930s. But they suffered manic booms and devastating busts, over and over, because there was too much economic activity for the gold on hand.

It took until the Great Depression for governments to accept that managing the money supply — injecting money every now and then, managing interest rates, requiring banks to be backed — was not optional, and that they just couldn’t do that on gold. Countries recovered from the Great Depression pretty much as they left the rigid gold standard behind, because managing your money supply works much better and is much more stable. A version of the gold standard lingered in the form of the Bretton Woods system until 1971, but rigid backing of currency with gold had been delivered the fatal blow by World War I and then the Great Depression.

But a standard mode of pseudoscience is to adopt and fervently defend a discarded idea, and “gold bugs” were no exception, ardently pushing the version of the gold standard that had just been demonstrated utterly inadequate to a functioning economy.

The entire purpose of charts like this is for Bitcoiners to try to convince, not ordinary people, but goldbugs that their advanced digital gold substitute is so just as good as gold — for goldbugs’ purposes.

This is the entire thesis of Saifedean Ammous’ The Bitcoin Standard. The formalised version of the goldbug ideology is Austrian economics. Ammous wants to convince Austrians that Bitcoin should be taken seriously.

Bitcoin maximalists are heavily into Austrian economics — but are most pained that Austrian economics fans aren’t really into Bitcoin. The Austrians want actual gold — not some ersatz digital substitute, full of crooks, scams and cut’n’paste imitations.

The arguments for Bitcoin as gold substitute tend to assume that being an ideologically-committed goldbug is normal. It turns out this isn’t the case.

Why you now need to convince people gold is any good

Gold is money because it’s been money for a long time — it has deep cultural value as a semi-magical item.

But since the modern economy went off the gold standard … people aren’t quite as into gold any more. They won’t say no — but the magic’s not there.

When advocating Bitcoin as gold to normal people, the advocates first have to argue why gold is as good as goldbugs think it is.

(Ammous’ book spends seven chapters just trying to do this, with Bitcoin left to three chapters at the end.)

As a store of value, gold goes up and down in price like a yoyo. It might be useful as an emergency store if you’ve sufficient reason for paranoia — but it might lose 30% of what you paid in a few years.


Gold price 2013-2018, from Money Metals Exchange. Truncated Y-axis in original.


Talking about gold’s value in terms of its industrial usefulness is pretty modern. It feels like an excuse. Nobody made this argument for gold’s value when gold was money.

And gold just isn’t that special industrially either. As I said in the book:

Gold bugs are frankly bizarre. There are lots of rarer metals than gold, but you never hear about “rhodium bugs” or “scandium bugs” or even “platinum bugs.”

Gold is used for decoration because it’s shiny — but mostly because it’s been valuable for a long time. Compare the formerly precious metal aluminium — corrosion resistant, and with a lustre not quite like any other metal! It had quite the selection of decorative uses. Before we worked out how to make it cheaply.

Out in the normal world, gold salesmen have a scammer’s reputation. They buy bottom-of-the-barrel advertising, and they market gold to suckers and conspiracy theorists. They try really hard to convince people that gold is intrinsically good, in some way every other commodity isn’t — because that isn’t the default assumption any more.

The Indian gold market

How about somewhere people are still seriously into gold? In India, gold remains enormously popular — amongst normal people, who aren’t Austrian-style ideological goldbugs.

It’s not just cultural inertia — gold is of practical use for daily finance. Many Indians don’t even have a bank account — but buying and selling gold for conventional currency is easier than in the UK or US, with a much smaller buy-sell spread. So they can actually be their own bank … with gold.

The Reserve Bank of India laments this, and really wants people to get out of dead money like gold and into live money, to get the economy moving. But Indians stick with gold insofar as the financial system doesn’t work well for them.

How are you going to sell Bitcoin to the average Indian? Why would a normal Indian think your computer data was just as good as gold — for the things they use gold for?

Bitcoin needs to work as money first

Bitcoin is simply not going to attain any of the magic of gold just because Bitcoiners would really like it to.

It would first have to be good and useful as money. Then it would collect other positive attributes.

I get Bitcoin maximalists telling me that Bitcoin is the choice of a younger generation, not old stick-in-the-muds like me. Their evidence for this then turns out to be such statistically-valid random samples as New York City Bitcoin meetups.

Approximately nobody, of any demographic, uses Bitcoin for anything — because it fails at all practical uses, and ideology doesn’t make up for its lack of functionality. Fitness for purpose beats ideology every time — and cryptos have failed dismally at literally every practical purpose.

Bitcoin was intended as electronic cash. It’s a miserable failure at this. All its other claimed purposes were bolted on after its miserable failure to be electronic cash.

You’d have to do quite a deep dive into obscure usages of the term “money” to find a shade of meaning that Bitcoin was even decent at. It’s failed in any practical sense of the word.

But then, Bitcoiners will seriously argue that Bitcoin is “money” and conventional currency isn’t “money.” In which case I’ll be continuing to use the not-money that my, and pretty much everyone else’s, entire financial life runs on.


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