Gold vs Bitcoin: Responses to Common Criticisms

This is the first in a series of planned articles expanding on a recent podcast episode, where I react to a gold vs bitcoin debate between Keith Weiner and Pierre Rochard.

Claim: Gold's 5000-year history proves it won't be easily displaced by bitcoin.

My response: This is an extremely overstated claim. While gold has been mined for millennia, its usage as money is much shorter and never the sole savings vehicle. It was only dominant for a brief period. Nothing in this history says that another form of money could not coexist or replace gold.

Several metals were used as money for much longer during this huge period of time. Great periods in a civilization's past are called their "golden age", but gold did not have its own Age, like the Bronze Age (3300 BC to 1200 BC) or the Iron Age (1200 BC to 500 BC, up to 800 AD in Northern Europe), both used in tools, weapons and as monetary metals.

Tin was perhaps the first super commodity spawning long distance trade, dating back to perhaps 3500 BC, prior to gold mining. Copper is also older and more import than gold in the distant past being mined as far back as 4500 BC. Tin was mixed with copper to make bronze. Bronze was more widely valued than gold during the first 2000 years of the claimed reign of gold as a monetary metal.

The Bronze Age gave way to the Iron Age for the next, approximately, 1000 years, lasting roughly to 500 BC in much of the world, and as late as 800 AD in Northern Europe.

That is already half of the 5000 year claim gone, so gold must have been the premier money after 500 BC, right?

Wrong. The first coins were stuck around that time in the Greek city-states, the 7th Century BC. Some were made of electrum (a natural alloy of gold and silver) but the most important were made of silver, not gold. Athens discovered a large nearby vein of silver, which helped them fund a massive navy and rise to power.

"The Greek drachma became the basis and etymological root for coins as well as their general denomination. There is a common thread relating all the Western currencies back to Greece. The drachma was spread east by Alexander the Great, all the way to Bactria and India giving rise to the drahm, dirham, and dramma. The Roman denarius also began life as a drachma equivalent minted by Greeks in Italy. The weight of the denarius later became the basis of the weight in gold for the solidus, later copied by the Umayyads with the dinar." Source

A widely used standard gold coin was not stuck until Augustus (27 BC to 14 AD) minted the aureus (7.79g) worth 25 denarii. This was a gold coin, but never widely used in trade, instead it was the silver coins which remained the primary money for hundreds of more years, until Constantine minted a new gold coin, the solidus (4.5g) in the early 300's AD, which happened to be of equal weight to the drachma.

The Byzantine solidus, and derivative 1/2 and 1/3 solidus coins, were circulated as much as silver coins for the next 700 years, perhaps making up the main coin in reserves, but note, they never circulated alone as the claim of 5000 years implies.

After the solidus fell out of circulation due to debasement, it was replaced for a period by silver coins once again, until the gold Florin in the year 1252. The primary unit of account remained the florin/ducat for 250 years, but never without other widely used coins of silver, copper or bronze. In 1497, monetary reforms in Spain created a silver real which came to dominate money after that as the peso and dollar. It wasn't until the 1850's that gold would once again become the dominant standard in the world. But, yet again, gold was never the sole money.

When people say gold has a 5000-year history, it doesn't include a single year where gold was the sole money or form of savings. It could be argued that there never was a primary gold standard until the period of 1850 to 1971. This is much shorter than the 5000 years claimed.

An argument that is not often used by gold proponents, but by bitcoiners, is that gold was harder money and eventually won out over silver and copper and so forth. This argument is not liked by gold bugs because it leads one to the conclusion that gold is not magically perfect money, that it will lose to an even harder money with many better monetary characteristics, namely bitcoin.

Bitcoin's 14-year history, when compared to gold, is rightly compared to this 120 years of a true gold standard, not the 5000 years of claimed history. This puts bitcoin's monetization schedule in proper context. While gold's monetary premium will likely never completely go away, due to the minute risk of bugs in Bitcoin and gold's extreme durability, claiming 5000 years of inertia is ridiculous. Bitcoin will like consume 90% or more of gold monetary premium.