Man's Search for Value: Gold, Bitcoin, and other Liquid Transferable Assets
How do we protect our value?
What I want to do here today, is, go over what is value, how man has interpreted value in the past, where we are now and how the world may look moving into the future.
The definition of value from the American Heritage dictionary as found online:
An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else, a fair price or return.
Monetary or material worth.
Worth in usefulness or importance to the possessor; utility or merit.
This first definition is also the definition of a barter system which of course is the oldest system of transaction since time immemorial. We don’t really have any record of the first barter per se. However, the oldest records we have of bartering date back to 6,000 BC in Mesopotamia as noted by archaeologists. Mankind quickly realized that this system was limited, though it is still useful to this day to avoid having to pay away value on everything to the government.
Later circa 1750 BC, among the items found in the code of Hammurabi were gold and silver. Interestingly, silver is mentioned 55 times and gold only four times. Then in 1370 BC it became apparent that something had changed. Gold had risen in demand under King Kurigalzu the First of Babylon, his voracious appetite for gold drove the price higher against other goods. But there was still no uniformity of weights and measure to transact this easily.
It would not be until 635 BC when the first recorded coin called the Stater was issued in ancient Lydia that the concept that we call money came to be. Meaning something that holds value against all other goods and is easily transferrable. This coin, however, was made of ancient alluvial deposits known as electrum. This was a naturally occurring alloy of gold and silver. But what made this become popular is that the King would declare the value of the number of cattle per coin, and with this decree all other price discovery was made easier. Later they learned to separate the two metals and gold quickly became the King’s holdings as silver circulated among the more common folk.
This was to be the beginning of the revelation that gold held value well. It is interesting to recall that there are over 460 mentions of gold and silver in the bible. One of the most famous being that Judas betrayed Jesus for 30 pieces of silver. Please remember, he was paid off to tell them where he was, not to put him to death, so this was not the value of a human life. In these times, there were many references of a ratio of silver to gold of 5 to 1.
But there were problems with coins especially because of governments debasing their own coinage. The Roman’s as would other governments in times of economic troubles, would alloy silver, then later copper in hopes the people would not notice. But of course, they would. Hence, there were always traders that would have to know the value of specific issues to figure out its trade value.
Gold was power because it was the most easily transportable form of wealth. After the fall of Rome, the Byzantine empire issued their own coin called the Bezant, which was traded all over the world. After the fall of Constantinople, the Arab countries continued the tradition of the same size coin and renamed it the dinar. These coins would remain the favorite of traders for centuries.
Then came a new concept that hit the market around the thirteenth century. It may have been the influence of Marco Polo’s trips to China. When he returned, he had carried the news that in China the people bought and paid for goods and services with banknotes. Kublai Khan had decreed that all gold had to be turned into him and he would issue them banknotes against it, or they would be killed (great incentive). This concept was a shock to Marco Polo’s system.
But once it was relayed, the promissory note was born in Genoa and Venice, where people would leave their gold with bankers/merchants who would issue promissory notes backed by the deposits. Traders would accept these notes for transactions for goods and services. This grew after the concept of double entry accounting was improved in 1494 via a book written by Franciscan brother Luca Pacioli and Leonardo da Vinci. Accounting advancements have often been overlooked though they are of major importance as the conceptual handling of value evolved and other paper documents changed the world. But do not be fooled, there were problems here as poor lending practices led to system failures and bankruptcies.
Yet, these concepts would continue to grow and change the way business is done as new ways of finding value and improving the flow money become available. The next most important evolution was the advent of a central monetary authority, which first would come into existence in Amsterdam in 1609. As Europeans traveled around the world and trade exploded there were complex issues. One of them was how to control the flow of value and keep it coming into the market. In the 1600s The Dutch East Indian Company was a growing enterprise and a monopoly with the support off the governing body. It was behemoth of trade. To help with the flow of value, often called the speed of money, The Bank of Amsterdam (BOA) would issue Notes and Bills of Exchange fully backed by gold and silver.
The BOA was as good as the gold and silver it held. They vowed not to lend and live off the service fees. But that did not last long because by 1657 there are records of them lending funds on account. Then the next fatal step was taken, they began financing the Dutch East India Company buy buying their corporate notes and holding them on account as an asset. Which they were, but they were being held as if they were as good as gold. In 1790, when the word got out that this was the case, it began a run on the bank. In that year it went bankrupt, as they did not have the gold or silver to satisfy their customers and the city of Amsterdam had to take it over.
While this was going on in Amsterdam, the creation of the first Central Bank resembling what we have now was chartered in England in 1694. The government was desperate to find new revenue to increase their wealth as taxation was a problem with the already suffering populace. With the help of monetary scientists, they developed a new way to create money using the fractional banking system.
The government would grant a charter to the monetary scientists to form a bank.
The bank would be given a monopoly to issue banknotes which would circulate as England's paper currency.
The bank would create money out of nothing with only a fraction of its total currency backed by coin.
The monetary scientists then would lend the government all the money it needed.
The money created for government loans would be backed primarily by government I.O.U.s.
Although this money was to be created out of nothing and would cost nothing to create, the government would pay "interest" on it at the rate of 8%.
Government I.O.U.s would also be considered as "reserves" for creating more loan money for private commerce. These loans also would earn interest. Thus, the monetary scientists would collect double interest on the same nothing.
In May of 1696, the Bank of England had its first run. This was just two years after it was formed. It took an act of Parliament to intervene to suspend “payment in specie”. This meant you had no choice but to trust the government. It also meant that what you held in your hand was debt. The government was telling you that their debt is your money. This was not a natural honest discovery. This was and is still an imposition. This imposition was how the government of England was able to finance their wars with France. They did not have the actual gold or silver to back their currency. The country of England consequently suffered many booms and busts over the ages. They tried to correct this issue with their banking system by limiting the amount of currency to be issued with the Peel’s Bank Act of 1844. This failed as it did not address the abuses of the fractional system properly and the problems continued to ensue.
Communists laughed at this system which was adopted by nearly all countries in Europe. In fact, Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. Through a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. In this one thing, he is right. However, he and his counterparts did not do better, they have run the same crippled monetary system, while robbing the people directly, they also used this system to do so discreetly.
In the USA gold and silver coins were the primary form of money up until the early twentieth century. Whenever, the currency in the United States was backed by gold and silver, then later solely gold, the economy and the people were able to benefit. The tremendous growth of the USA into a superpower was possible because of three factors, American blood in World War 2, sweat through the industrial revolution, and gold or sound money if you prefer.
It was obvious from the get-go of the Federal Reserve, on December 23, 1913, that eventually the USA would suffer the same fate as that of the English system. In less than sixty years, gold has been abandoned. This created an explosion of activity in the foreign exchange markets and on the commodities exchange because now the Reserve currency of the world, not just of the USA, is solely based on the promissory notes of the United States government. This does not instill confidence in me or investors.
That is why we have such volatility in prices and exchange markets. This benefits only the wealthy and traders, that brings no real value to the world economy. This part of the financial market which was recorded in 2016 by the Bank of International Settlements at $5.4 trillion daily, exists only for price discovery. How does that feed the people, keep them warm or enable growth?
In my short sixty years, I have lived through at least six serious economic downturns. I have seen the prices of houses explode and then collapse, only to climb again. I have seen inflation and explosion of fuel prices. I have seen bank collapses galore, domestic, and international. I have seen the destruction of economies in Latin America from predatory lending to these countries. Then followed by their own currency creation and manipulation, always the final payer being the people. It is fractional lending, which at the face seems reasonable but when let to run rampant destroys all economies.
Paraphrasing a quote from Nancy Pelosi, what is the problem, we cannot run out of money, we will just print more. Dear Nancy, this is exactly the problem. Especially for the regular people who do not have great wealth and cannot afford to lose money every time the Central Banks goes to the presses.
It is incredibly naïve of us as educated human beings not to realize and accept the inadequacies of our current system. The attempts to defend our monetary system primarily come from the same powers that hold all the cards. The banking and financial industry.
I am not saying that I am against fractional banking. In fact, credit is the bedrock of growth and society. However, there needs to be checks and balances. Currently there are none. Governments control and dictate value and once they have this control, they get drunk with power and the ability to create more. We have no choice and must accept the system even though it always fails and hurts those that earn wages, while benefiting and protecting the banking industry that benefits from the too big to fail mentality.
Therefore, every utterance from the Federal Reserve is as if a god is speaking to the people. They control the purse strings of the world now, since they control the reserve currency, the US Dollar. One interesting point is they control it only to a certain extent, the system is untenable and bound to implode. At some point, government decrees will not be enough to control the devastation. All confidence in currency will be lost and then what?
The expectation of the oncoming doom is not just a figment of my imagination. This expectation is what explains why the demand for gold and silver has been steadily on the rise since 2000. If you recall in the year 2000 gold was trading around $260 per ounce and rose to as high as $2000 per ounce. That is over 700% increase! Since 2010 Central Banks became net buyers of gold. Two significant buyers are China and Russia which have bought 1,553 tons (393% increase) and 1,873 tons (443% increase) respectively as of 2021. This would signal a concern for fragility of the current reserve currency, the US Dollar. This also signals gold is real and secure money.
People are increasingly looking to hard assets to secure their hard-earned value. Real estate, commodities, silver, and gold. But the need is for transferable assets to work as money. Of these three choices, gold is the most adaptable and transferrable. In a world where information travels at light speed, we need money that can also move fast, be liquid and yet still be secure. There exists no reason mankind should stop looking for solutions.
The people are tired of being told there is no or little inflation while their buying power collapses at every turn. The US government states the inflation rate was 6.5% in 2022, a lie. For most people, the inflation rate is at least 20% or greater. Therefore, the search for a better handle on value outside of the control of a government is important. Because while your money or value is controlled by a government, you will lose money through no fault of your own.
In 2009, a person under the name of Satoshi Nakamoto launched the first Crypto currency named Bitcoin. This product boasted the Bitcoin (Crypto graphic) protocol, coins created through Proof of work (known as mining), a decentralized blockchain, a self-verifying network and a fully transparent record of activity.
A few months back I had watched in shock the Congressional testimony of the new CEO John J. Ray of the bankrupt FTX Cryptocurrencies exchange and its related companies. I was not shocked by anything Mr. Ray had to say but by the often-ignorant commentary of the congress, men and women. The worst was Congressman Brad Sherman whose complete ignorance is clear and sadly continues to propagate the same tired lies that many people are being fooled into believing. Cryptocurrencies is a security, it is used predominantly for criminal activities, and it is nothing but fraud. All a lie.
Cryptocurrencies are not a security. The SEC’s own definition “A security is a form of ownership in an entity”. Cryptocurrencies are a commodity; they are an object, albeit ethereal in nature, created through proof of work protocol. This clearly would indicate, that if any government entity should have authority to monitor or regulate them in any way, it may be the purview of the CFTC (Commodity Futures Trading Commission), even though they are not futures contracts. (Note the CFTC is already regulating BTC futures.)
However, they are a form of value, hence any lending against an asset is a form of banking. If an institution is holding someone’s assets on an unallocated basis and can use these assets, entering the fractional lending of such assets this is banking. Hence, the real parties that should be involved in any way with monitoring exchanges would be the United States Banking Committee, wherein lending is occurring. However, where they are not being used in any financing mechanism or leveraged in any way, this should not be regulated.
Hence, Cryptocurrencies hold very much the same properties as the best value mechanism ever created in the world, which is gold. They are a commodity since they are limited and mined. Bitcoin has a limitation of 21,000,000, gold has its natural limitations, and other Cryptocurrencies do have set limits as well. The market sets the value of the Cryptocurrencies, and its value is outside the hands of the government. Just like gold cannot be controlled by the governments, neither can they control Cryptocurrencies.
There are three benefits legitimate Cryptocurrencies brings to society:
Price discovery free of government manipulation
Blockchain, traceability of all transactions
An asset in the hands of the owner, not a bank
Better than gold, is the easy transferability of Cryptocurrencies. You can use it to pay for goods and services, just like cash, except all via the computer networks which are supporting the market. For BTC as of July 2022 the network holds 406.05 Gigabytes of data with over 14,000 nodes around the world. A Bitcoin node is a software or device that runs the Bitcoin protocol. This means it would be virtually impossible for the blockchain to be destroyed. Hence, your BTC is safe from government meddling as well.
On the flipside, block chain allowed authorities to better track money movement. Though the network offers safety from government intervention on your savings of value, it does not offer you complete anonymity from your activity. For instance, if the authorities know your BTC address, which is discoverable, then they can easily track your activity across the network. In essence, it's just like the old-fashioned system, once they know your account, they can track everything else down. On a blockchain it is easier for them if they have the right skill set.
In February of 2022, the US Justice Department arrested two persons and seized over $3.6 billion worth of Cryptocurrencies that was stolen in a hack on Bitfinex, proving finally that Cryptocurrencies are not a safe haven for criminals. As the Department of Justice was quoted as saying “they can follow the money no matter what form it takes.”
In summation, my point of view, and I have no real skin in the game other than I am closer to your average Joe, is that it may be the way of the future. We need a reliable way of finding and holding onto our value creation. What I mean is when a person is working hard and puts away a few hundred dollars a month, he or she needs to know that this asset will not lose significant value. In fact, their goal should be that the asset should grow in value. With the current state of our money the average person suffers significant losses every cyclical downturn in this fiat currency mechanism. The most recent loss being what I believe to be above 20% inflation of the price of many goods and services in this past year. I do not know about you, but to me that is a lot of money down the drain.
The Central Banking mechanism that allows this, is not only an invisible form of taxation, but it also continues to enrich those that most benefit from this corrupt system. Therefore, you will have many politicians plotting against this technological advancement since the cronies in banking and finance, who have the influence to lobby for support, would lose their stranglehold on value.
Transferable hard assets are an important part of self-defense from the destructive policies of the central banking systems. The people need something that they control that is liquid, and easily transferable for everyday living. Gold and silver have played that part in the past and will continue to play an important part in the future. Technology has brought a new product to the table, and it behooves us as intelligent beings to seek its proper use and place in our society.
The only reason we have people standing in the way of innovative technology is either of two things. The first is a lack of understanding or trust. With proper education, this will be overcome. The second is the desire to keep control of money and not allow the people to have control of their own destiny. Luckily, I believe, the cat has been let out of the bag. Truth will prevail over time and our newest monetary product is here to stay and most importantly may play a key role in transitioning this world into a more honest and just society for all.
PS: On a special note, after careful contemplation, I believe without the Central banking scheme that allows governments to print money and finance wars without restriction, most large-scale wars would have been and will be avoided. Hence, this gives more reasons why society needs to abandon this corrupt central banking monetary system.
Oh, and just for laughs read about money in the Star Trek Universe here.
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Marco Polo and his travels - Who was Marco Polo? - Silk-Road.com
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Special thanks to Joshua Guest of the HiFi Bitcoin Letters on Substack.com