The Internet + Gold = Bitcoin
Bitcoin combines properties from modern technology and historic monetary commodities to create an ingenious innovation.
One of the most important events in human history was the invention and diffusion of the printing press. In the 1400s, Gutenberg created his version of the printing press, and from there the innovation spread rapidly. Why was the printing press such a big deal?
Imagine how someone living in the world before the printing press could access certain information. The entire collection of thoughts and ideas throughout time were handwritten and only a privileged few were able to make use of this information for themselves. The printing press allowed information to be spread to the masses. Like never before, people could communicate at scale which altered the direction of the human species forever.
No longer were only royalty or monks privy to certain information - it’s no surprise that the Printing Revolution led directly into the Scientific Revolution. The speed at which information spread was drastically increased, leading to a dramatic rise in collective intelligence.
In the 20th century, modern technologies developed to enhance information and communication even further. Think about our current access to information - you are able to view almost any work ever published by any human throughout history with the click of some buttons. I believe we have yet to comprehend how truly profound this fact is. With some kind of electronic device and an internet connection, anyone in the world has the ability to receive whatever information they desire.
Not only can we just access information, we can also communicate at scale like never before. Instant messaging, social media, and other applications allow any internet user to connect with others around the world in seconds.
Sometimes, however, all this access to information can be overwhelming. Who is to say what good information is? How can there be any objectivity when everything is so subjective? How do we find the signal amidst all the noise?
Let’s take a look at the second part of our equation - gold.
Our current monetary system would never have been possible without dollars once being redeemable for gold. Early versions of the US dollar were simply pieces of paper that were claims on physical gold - anyone could exchange their paper notes for gold if they so pleased. Dollars were once redeemable for gold because the world chose gold as the best form of money.
That last sentence is very important to understand, so we will take a closer look.
The monetization of gold was a process that played out over hundreds of years, involving millions of different people. There was no one, specific person that decreed that gold was going to be used by people as money. Gold becoming money isn’t a theory or random phenomenon - it is simply a display of human action.
People seek to store value for the future because the future is uncertain.
Money acts as an “insurance policy” against anything that can happen. By storing your wealth in something that is predictable, you are more likely to be able to do what you want to do with your wealth in the future. Gold served this function for the majority of human history.
As long as our species cannot perfectly predict the future, there will always be demand for preserving our wealth to insure against unpredictability.
Today, we are forced through legal tender laws, tax laws, etc. to use US dollars. The Fed and US government intervened and hindered the free market by making gold less relevant. Despite these efforts, gold still maintains a monetary premium and has a market cap of approximately $10 trillion.
So, how does the internet combine with the properties of gold to form Bitcoin?
We are able to move information at light speed using the internet because of how the internet is built. The internet is really just a stack of protocols that work together to move information from point A to point B. When we browse the web or message someone, we don’t see much of what is going on behind the scenes because we are interacting with a small portion of the internet stack.
Bitcoin is an internet-native money. All the Bitcoin protocol does is move specific information around just like the rest of the internet does. However, there is something very significant about how Bitcoin treats this information.
Bitcoin’s incredible innovation is that we are able to move value from one party to another simply by exchanging information.
The information is what’s valuable!
In the Bitcoin network, the important pieces of information are called private keys. Private keys are nothing but small bits of information. What’s cool about these small bits of information is that knowing the information is equivalent to owning the asset. This is because in order to spend bitcoins, the private key is needed - anyone who knows the private key can spend whatever amount of bitcoin belongs to that specific address.
Furthermore, Bitcoin improves upon all the properties that made gold desirable as money. Securing your private keys can be arranged to suit your needs. Since these keys are just information, it is very simple to keep them safe - you don’t have to worry about storing large gold bars anymore. Certain custody schemes, like multi-signature wallets, allow users to geographically separate access to private keys to enhance security even more.
Perhaps the most important thing about Bitcoin in comparison to gold is its improvement on predictability. Earlier we mentioned that gold was the best insurance policy for the unknown future. This was true because gold’s supply is difficult to inflate. Bitcoin’s supply is fixed at 21 million - the first bearer asset that is absolutely scarce.
To sum up the main points I am trying to make - by combining the properties of the internet (moving information at light speed) and gold (reliable store of value across time), the Bitcoin network will change the way we are able to interact with one another in the global economy forever. Bitcoin is a remarkable achievement much like the printing press. With Bitcoin, users can store their wealth or make a transaction just by knowing a tiny string of information.
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