Bitcoin: Reassessing the Essence of Currency in the Internet Era

Introduction

Currency is one of the most profound and consensus-driven inventions in the progress of human civilization. From barter to metal coins, from the gold standard to sovereign credit currencies, the evolution of currency has always accompanied changes in trust mechanisms, transaction efficiency, and power structures. Today, the global currency system is facing unprecedented challenges: excessive currency issuance, trust crises, worsening sovereign debt, and geopolitical shocks caused by the hegemony of the US dollar.

The birth of Bitcoin and its continuously expanding influence force us to rethink: what is the essence of currency? In what form will the future "value anchor" exist?

The revolutionary nature of Bitcoin lies not only in its technology and algorithms but also in its role as the first "bottom-up" currency system driven spontaneously by users in human history, challenging the millennium paradigm of state-dominated currency issuance.

This article will review the historical evolution of currency anchors, critique the dilemmas of the current gold reserve system, analyze the economic innovations and limitations of Bitcoin, explore the thought experiment of Bitcoin as a future value anchor, and look ahead to possible diverse evolutionary paths for the global monetary system.

1. The Historical Evolution of Currency Anchors

1. The Birth of Barter and Commodity Money

The earliest economic activities of humanity mainly relied on the "barter" model, where both parties involved in the transaction had to possess exactly what the other needed. This "double coincidence of wants" greatly limited the development of production and circulation. To solve this problem, universally accepted value commodities like shells, salt, livestock, etc., gradually became "commodity money" (, laying the foundation for later precious metal currency.

) 2. Gold Standard and Global Settlement System

Entering civilized society, gold and silver became the most representative general equivalents due to their natural properties of scarcity, ease of division, and difficulty of tampering. Ancient empires such as Egypt, Persia, Greece, and Rome all used metallic currency as a symbol of national power and social wealth.

By the 19th century, the gold standard was established globally, with national currencies linked to gold, achieving standardization in international trade and settlement. England officially established the gold standard in 1816, and other major economies gradually followed suit. The greatest advantage of this system is that the "anchor" of currency is clear, and the trust cost between countries is low. However, it also resulted in currency supply being constrained by gold reserves, making it difficult to support the expansion of industrialization and the global economy, leading to issues such as the "gold shortage" and deflationary crises.

3. The Rise of Fiat Currency and Sovereign Credit

In the first half of the 20th century, the two World Wars completely impacted the gold standard system. In 1944, the Bretton Woods system was established, linking the US dollar to gold, while other major currencies were linked to the US dollar, forming a "dollar standard." In 1971, the Nixon administration unilaterally announced the decoupling of the dollar from gold, marking the official entry of global sovereign currencies into the era of fiat currency, where countries issued currency based on their own credit and regulated the economy through debt expansion and monetary policy.

Fiat currency has brought great flexibility and economic growth potential, but it has also buried the hidden dangers of trust crises, hyperinflation, and excessive money supply. Third world countries repeatedly fall into local currency crises ( such as Zimbabwe, Argentina, and Venezuela ). Even emerging economies like Greece and Egypt are struggling in debt crises and foreign exchange turmoil.

2. Realistic Dilemmas of the Gold Reserve System

1. Concentration and Opacity of Gold Reserves

Although the gold standard has become history, gold remains an important reserve asset on the balance sheets of central banks around the world. Currently, about one-third of the official gold reserves are stored in the vaults of the Federal Reserve Bank of New York. This arrangement stems from the trust in the U.S. economy and military security within the international financial system after World War II, but it has also brought significant issues of concentration and opacity.

For example, Germany once announced that it would repatriate part of its gold reserves from the United States, one reason being distrust of the U.S. Treasury's accounts and the long-standing inability to conduct an on-site audit. It is difficult for outsiders to verify whether the treasury accounts align with the actual gold reserves. Additionally, the proliferation of derivatives like "paper gold" has further weakened the correspondence between "book gold" and physical gold.

( 2. The non-M0 attribute of gold

In modern society, gold no longer possesses the attributes of a currency for daily circulation )M0###. Individuals and enterprises cannot directly settle daily transactions with gold, and it is even difficult to directly hold and transfer physical gold. The primary role of gold is more as a settlement tool between sovereign nations, a reserve for large assets, and a hedge in the financial market.

International gold settlements usually involve complex clearing processes, long time delays, and high security costs. Moreover, the transparency of inter-central bank gold transactions is extremely low, and the verification of accounts relies on the trust endorsement of centralized institutions. This makes gold's role as a global "value anchor" increasingly symbolic rather than a reflection of its actual circulating value.

3. The Economic Innovation and Real Limitations of Bitcoin

1. The "algorithm anchoring" of Bitcoin and its monetary properties

Since its inception in 2009, Bitcoin's characteristics of fixed total supply, decentralization, and transparency have sparked a new round of global thinking about "digital gold." The supply rules of Bitcoin are written into the algorithm, with a total supply cap of 21 million coins that no one can change. This scarcity, "algorithmically anchored," is similar to the physical scarcity of gold, but is even more thorough and transparent in the era of the global internet.

All Bitcoin transactions are recorded on the blockchain, and anyone in the world can publicly verify the ledger without relying on any centralized institution. This property greatly reduces the risk of "discrepancy between the books and the physical assets" in theory, and also significantly enhances the efficiency and transparency of settlement.

( 2. The "bottom-up" diffusion path of Bitcoin

Bitcoin has a fundamental difference from traditional currency: traditional currency is issued and promoted "top-down" by the power of the state, while Bitcoin is adopted spontaneously "bottom-up" by users and gradually spreads to businesses, financial institutions, and even sovereign nations.

• User first, institution later: Bitcoin was initially adopted spontaneously by a group of cryptocurrency enthusiasts and libertarians. As network effects strengthened, prices rose, and application scenarios expanded, more and more individuals, businesses, and even financial institutions began to hold Bitcoin assets.

• Passive adaptation by countries: Some countries have designated Bitcoin as legal tender, while others have approved Bitcoin-related financial products, allowing institutions and the public to participate in the Bitcoin market through compliant channels. The user base and market acceptance of Bitcoin have driven sovereign nations to passively embrace this new form of currency.

• Global Borderless Expansion: The network effect of Bitcoin has transcended sovereign boundaries, with a large number of users in both developed countries and emerging markets spontaneously adopting Bitcoin in their daily lives, asset reserves, and cross-border transfers.

This historic shift indicates that whether Bitcoin can become a global currency no longer solely depends on the "approval" of countries or institutions, but rather on whether there are enough users and market consensus.

Insights into the future currency landscape:

• The separation of power and currency may be possible: currency no longer necessarily depends on national power, but can belong to the internet, algorithms, and the consensus of global users.

• National support has become "the icing on the cake": Whether Bitcoin becomes a global currency no longer completely depends on legislative support from national institutions, as long as there are enough users and social recognition.

• New Sovereign Challenges: Sovereign nations may have to adapt to, or even passively accept, the impacts brought by "user-governed currencies" in the future.

Critique and Speculation:

Limitations and Risks of User Autonomy: How to manage risks such as extreme volatility, governance challenges, and "black swan" events in the absence of sovereign backing?

Can "bottom-up" respond to global crises? When facing systemic financial crises or large-scale technical attacks, is a currency system lacking central coordination more vulnerable?

Redistribution of power: Has Bitcoin really become "decentralized"? Or will new oligarchs emerge?

) 3. Realistic Constraints and Criticism

Although Bitcoin has revolutionary potential in theory and technology, there are still many limitations in its real-world applications:

• High price volatility: The price of Bitcoin is highly susceptible to market sentiment, policy news, and liquidity shocks, with short-term fluctuations far exceeding those of sovereign currencies.

• Low transaction efficiency and high energy consumption: The Bitcoin blockchain has a limited number of transactions it can process per second, a long confirmation time, and the proof-of-work mechanism consumes a large amount of energy.

• Sovereign resistance and regulatory risks: Some countries adopt a negative or even repressive attitude towards Bitcoin, leading to a fragmentation of the global market.

• Uneven distribution of wealth and technical barriers: Early Bitcoin users and a few large holders control a significant amount of Bitcoin, leading to a high concentration of wealth. Additionally, ordinary users face certain technical barriers to participation, making them susceptible to risks such as fraud and loss of private keys.

IV. The Similarities and Differences Between Bitcoin and Gold: A Thought Experiment as a Future Value Anchor

1. The Historical Leap of Transaction Efficiency and Transparency

In the era of gold as a value anchor, international bulk gold transactions often require the use of airplanes, ships, armored vehicles, and other means for physical transfer, which not only takes days or even weeks but also incurs high transportation and insurance costs. For example, the German central bank once announced that it would repatriate its gold reserves from overseas, and the entire plan took several years to complete.

More critically, the global gold reserve system suffers from severe opacity and counting difficulties. The ownership, storage location, and actual existence status of gold reserves often rely solely on unilateral statements from centralized institutions. In such a system, the trust cost between countries is extremely high, and the robustness of the international financial system is constrained.

Bitcoin addresses these issues in a completely different way. The ownership and transfer of Bitcoin are recorded on-chain throughout the process, allowing anyone in the world to verify it in real-time and publicly. Whether it's individuals, businesses, or countries, as long as they have the private key, they can access funds at any time without physical transfer or third-party intermediaries; global settlement only takes a few minutes. This unprecedented level of transparency and verifiability gives Bitcoin an efficiency and trust foundation in bulk settlement and value anchoring that gold cannot match.

2. The "Role Layering" Concept of Value Anchors

Although Bitcoin far exceeds gold in terms of transparency and transfer efficiency, it still faces many limitations in daily payments and small circulation—issues such as transaction speed, fees, and price volatility make it difficult to become "cash" or M0 in reality.

However, referring to the currency hierarchy theory such as M0/M1/M2, we can envision a future currency system with the following structure:

• Bitcoin and other "anchor assets" serve as value stores and large settlement tools at the M1+ level, similar to the position of gold in central bank assets, but more transparent and easier to settle.

• Stablecoins based on Bitcoin, layer two networks ### such as the Lightning Network ###, sovereign digital currencies ### CBDC (, etc., are responsible for daily payments, micropayments, and retail settlement functions. These "sub-coins" are anchored to Bitcoin or issued under its guarantee, achieving a unity of circulation efficiency and value stability.

• Bitcoin has become a "general equivalent" and "measuring unit" of social resources, widely recognized by the global market, yet it is not directly used for daily consumption; rather, it serves as an "anchor" of the economic system, similar to gold.

This layered structure not only utilizes the scarcity and transparency of Bitcoin as a global "value anchor," but also leverages technological innovation to meet the convenience and low-cost demands of daily payments.

5. Possible Evolution and Critical Thinking of Future Currency System

) 1. Multi-level, multi-role currency structure

The future currency system is likely to no longer be dominated by a single sovereign currency, but rather a coexistence of three layers: "value anchor - payment medium - local currency", with cooperation and competition running parallel.

• Value anchor: Bitcoin ( or similar digital assets ) serve as a decentralized global reserve asset, assuming roles in "high-level currency" such as cross-border settlement, central bank reserves, and value hedging.

• Payment mediums: stablecoins, sovereign digital currencies, Lightning Network, etc., anchored to Bitcoin or sovereign currencies, to achieve daily circulation, payment, and pricing.

• Local currency: National currencies continue to perform the functions of regulating and managing local economies, achieving taxation, social welfare, and economic policy objectives.