Why Digital Gold Won’t be a Thing
Prior to August 15th, 1971, a US dollar was worth 1/35th of an ounce of gold — known as the gold standard (actually the Gold Window, FDR had started the process of removing the gold standard in 1993).
This was a monumental moment. The gold standard kept the US (and other governments honest) — because there was only so much gold in the ground, there could only be so much Fiat — preventing rapid inflation.
Changing this dynamic was a paradigm shift…
The concept of money
Historically “money” has served three purposes:
- medium of exchange (ability to trade)
- unit of account (standardization)
- store of value (risk management).
In practice, the first two are linked. Because the US issues US dollars and while the UK works with British pounds (GBP), there are standards of exchange across currencies. Due to the number currencies worldwide, it would be impractical to peg every fiat currency to every other, and thus the US dollar is the primary pegging mechanism (as is BTC in crypto).
Rather than maintaining exchange rates with 180+ currencies worldwide, everyone trades into (and out of) USD — the standard.
Gold as a store of value
The storage of value is really nothing more than trust. You trust gold to stay relatively consistent in price as do others around the world because there is only a limited supply and the ROI on holding is quite low (meaning low demand).
If however the price of fluctuated or countries began dumping gold bricks into the oceans, the decreased supply would trigger price jumps and subsequent unrest. But because we are all motivated by money, that does not happen.
This isn’t true with dollars (or any Fiat currency). Here trust is in the issuing entity. You and I both need to trust the US government and the stability of the dollar to be able to transact with it. And because a government is inherently less stable than a distributed supply of gold, the trust relative to gold is significantly lower — thus equating to lower value.
And as the supply of fiat is not fixed, the value of the dollar decreases every year with inflation as more dollars are printed (and so does our trust in the dollar and by definition US government).