Gold vs. Bitcoin: A Soho Forum Debate
Monetary Metals CEO Keith Weiner defends the future of gold against bitcoin podcaster Pierre Rochard.
HD DownloadWill gold remain an important form of money, or are cryptocurrencies like bitcoin set to overtake it?
That was the subject of a Soho Forum debate held on July 26 at the Mises Institute in Auburn, Alabama, as part of Mises University, an annual instructional program in the Austrian school of economics attended by over 80 accepted students from around the country.
Keith Weiner, CEO of Monetary Metals, defended the resolution: "Gold will remain an important form of money in the 21st century." Weiner took the position that gold is poised to hold on to the monetary status it's enjoyed for the past 5,000 years and that its recent performance only confirms why.
Pierre Rochard, co-host of the Bitcoin for Advisors podcast, took the negative, arguing that the technological advantages of bitcoin will make it the preferred medium of exchange in a post-dollar world.
This debate was moderated by Soho Forum director Gene Epstein.
Narrated by Nick Gillespie; edited by Clay Barnett and John Osterhoudt
Photo: The Mises Institute; Kirez, CC BY-SA 4.0, via Wikimedia Commons; Rangan Datta Wiki, CC BY-SA 4.0, via Wikimedia Commons
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Gold is valuable in-part because of its industrial, medical and scientific applications.
Bitcoin is valuable because people accept it as valuable.
Gold’s value, however, has nothing to do with its industrial, medical, or scientific applications anymore than the price of Beanie Babies is (was?) justified by the cost of fabric.
The real answer is that the debate is silly because neither one is a particularly good store of value for exactly that reason. Although between the two gold is superior because it is a physical object which can be safely secured and which is pretty much immune to destruction. With Bitcoin, you’re just holding out on a wing and a prayer that no one cracks (or has cracked) the algorithm. I wouldn’t take a twenty dollar bet the spooks haven’t already and just aren’t telling anyone.
It’s not the algorithm that needs to be cracked. The algorithm is open and freely available to all.
It’s each individual key that would need to be cracked, one by one.
Or they just have to wait for it to be a real threat and then run 51 percent of the next hash through a computer supercenter and move all the Bitcoin into some centralized control.
“Or they just have to wait for it to be a real threat and then run 51 percent of the next hash through a computer supercenter and move all the Bitcoin into some centralized control.”
Who is “they”?
Understand that in order for this to work:
“They” would have to get a computer “super center” big enough to completely double the effective computing power of the bitcoin hashing network. That is the only way you capture 51% of the hash rate. The hashrate is currently at around 220 Million TH/s. That means you would need around 2 MILLION top-of-the-line Ant Miner s19 pros- at a cost of around 10 Billion dollars (and that’s probably 5x as many antminers that have ever been produced). That’s around 7000 shipping-container-sized units, 6.5 Gigawatts of excess power sitting around to power the miners, plus cooling power.
Second, all the rest of the network would need to sit and accept it- because it is absolutely clear when a block contains transactions that cannot be verified cryptographically.
And just so you know, the fun thing about bitcoin is that the Miners aren’t the only verifiers of the block. I have a raspberry pi sitting on my desk that is worthless for mining, but will reject any block that doesn’t follow the BTC protocol, and that includes broadcasting an invalid block. It will mark those miners invalid and never accept them again.
6.5 Gigawatts of excess power
Just to make it more understandable to the op, that’s enough power to run THREE deloreans with flux capacitors!
That’s heavy!
‘They’ are the NSA, or Chinese or European (etc) equivalents. There are multiple govt agencies with the capacity just in the US.
And Bitcoin is supposedly immune from govt actions. Pfft. It was started by the NSA, it’s just a honeytrap.
“Gold’s value, however, has nothing to do with its industrial, medical, or scientific applications anymore than the price of Beanie Babies is (was?) justified by the cost of fabric.”
If fabric was impossibly rare and the only way to make more of it was a particle accelerator then you bet Beanie Babies would be justified by the cost of fabric.
What a ridiculous analogy.
Gold’s use as a monetary standard that beat out all competition over 5000 years is due to many things, all of which are important, and work together.
Add blockchain and we have crypto-gold. No, “ifs” needed. You are guilty of “a ridiculous analogy”.
The problem with bitcoin is a fundamental misunderstanding of currency. The typical argument about a currency is that its utility depends on certain attributes, including portability, divisibility, durable, etc. One that is often misunderstood is “Scarce”.
When people talk about an ideal currency being Scarce, they are missing a symptom for a cause. The real attribute you want is “Tightly coupled to productivity tradeoffs”. The end result is Scarcity.
Gold isn’t actually scarce. Depending on who you ask, there has been less than 250 thousand metric tons of gold mined in human history. But scientists estimate that there are some 122 BILLION metric tons of gold in the earth. And that doesn’t even begin to approach the bountiful amounts sitting accessible in near-earth asteroids.
Gold isn’t scarce, it is just difficult to acquire. If you want to produce it, you need to allocate productivity to locate, acquire and process it. And this is the key to gold’s usefulness as a store of value. We all have a certain amount of productivity, and we must all make tradeoffs on how we choose to use it. Do I grow food, make widgets, or go dig shiny rocks out of the ground? If I choose to dig gold out of the ground, will it be as efficient as producing my own food? If not, then I will produce food or make widgets in order to survive.
So understand that a currency is really a storage of excess productivity. Just as frontiersmen of early America turned their excess grain into durable, tradable whisky (which was briefly used as a currency), civilizations that dig gold out of the ground do it because they are TRADING OFF other uses of that productivity. This is why fiat is such a bad currency- it can be produced without any tradeoff of productivity. No one is having to choose between producing more greenbacks, or opening a power plant.
In many ways, Bitcoin is superior in divisibility and transportability. And for right now, it is actually a great store of excess productivity. Millions of people are constantly making decisions of whether to mine bitcoin, or use excess productivity (as expressed in compute equipment, energy and datacenters) for other purposes. Bitcoin can only be mined as long as there is enough surplus energy that it can be purchased and turned into bitcoin at a profit.
But unfortunately, that (right now) is coming to an end. While Satoshi Nakamoto made a genius solution to the Byzantine General program, creating the framework for peer-2-peer trustless payments, his “currency” is a bit more crude. Bitcoin’s artificially induced scarcity (its 21MM cap) will slowly decouple it from the likes of gold where people can spend productivity to create more, and instead turn it into something like land ownership or trading in precious works of art.
If Bitcoin is going to survive, there will be a fork at some point, where mining and transacting are split into two operations. To mint new bitcoin will be so energy intense, that it will only be done when the economic activity in the blockchain yields enough productivity to grow justify expanding the monetary base. Meanwhile, transactions will be handled with fees, where no new currency is created.
I didn’t listen to the video, because I never listen to videos, but it looks like they’re using bitcoin as a generic term for Cryptocurrency, maybe.
To an extent then, it’s even worse. Most alt-cryptos think Bitcoin’s proof of work algorithm is a bug, not a feature. What they are generally trying to do is mint coin without having to pay as much for it. But that is like saying someone would like to mint gold without digging it out of the ground. Well…sure…we’d all love to do that, up until decoupling production from productivity destroyed gold as a currency.
But scientists estimate that there are some 122 BILLION metric tons of gold in the earth. And that doesn’t even begin to approach the bountiful amounts sitting accessible in near-earth asteroids.
This is theoretical, but even if true, and we began to gain access to those extra metric tons, that would probably parallel an expansion of the economy.
Also, no one except this website has bothered to explain to me how one would transact bitcoin without computers or internet.
“This is theoretical, but even if true, and we began to gain access to those extra metric tons, that would probably parallel an expansion of the economy.”
Which is the point I was making. Gold isn’t an effective currency because it is scarce. It is effective because mining it requires productivity tradeoffs. An “expanding economy” is an economy where there is excess productivity. At some point, the better tradeoff of that productivity is to “lock it in” by producing gold.
“Also, no one except this website has bothered to explain to me how one would transact bitcoin without computers or internet.”
Yes this is a key weakness of any blockchain-based currency. While it could survive absent the internet (if there were some alternative network), it is dependent on computers and could not survive a civilization where electricity stopped. Of course, it is unclear if anything but guns and supplies would be valuable in those situations.
Gold also has tradeoffs. For example, the fees associated with very large transactions become prohibitive.
An important point, that makes many Bitcoin Maxis angry, is that proper currencies should not just grow in value by hodling. That’s speculation, and it isn’t really conducive to an efficient currency.
In general, a good currency should hold the value of your productivity, nothing more. If you work an hour and use it to mint or acquire [perfect-coin] then as a store of value, it should hold that value for the long term. Yes, when compared to fiat currency, [perfect-coin] will increase in price. Because an hour of your time is worth more USDs tomorrow than today due to monetary inflation.
And also, increasing productivity should mean that your [perfect-coin] will buy more tomorrow than it does today. 20 years ago, computers were far more expensive than they are today. So acquire a [perfect-coin] today, and in 20 years, it will buy more computer or cups of coffee than today.
But you should not get rich holding onto [perfect-coin] just due to the increase in its value. No matter how long you hold onto a coin, an hour of your productivity should not buy a small island in the Caribbean. And this desire to get paid for nothing more than stuffing a coin under your mattress is what gives BTC Maxis a bad name. It also is what will ultimately undermine the currency.
an hour of your productivity should not buy a small island in the Caribbean.
as a general rule, why?
In general, for the reasons I specified prior. I guess a more expanded statement would be, “If an hour of your productivity (converted to [perfect-coin]) would not buy you a small island in the Carribbean today, then you should not expect it to buy you one just because you held the [perfect coin] for 20 years.”
The reason is that would imply one of two possibilities. The first is that the cost of small Caribbean Islands has decreased to the point where your hourly wage today would buy one in the future- just as the Real cost of TVs, Computers, and Food have decreased until we can buy more today (in real, inflation corrected dollars) than we could have in the 80’s (or whatever). In general, I find that highly implausible, but I guess YMMV.
The second possibility is that the currency you are holding has not kept its supply stable with productivity. This is Deflation, where it takes more of your productivity to buy a [perfect-coin]. In a deflationary currency, your productivity today buys you a salary of 100 [perfect-coin]. Your boss says you did a great job this year (maybe your productivity even increased!) and you get a “raise” to 80 [perfect-coin]. So as a measure of excess productivity, the currency has failed. In fact what is happening is that speculators holding the currency are siphoning off the excess productivity of other actors in the economy.
I have gone rounds with BTC Maxis who argue that Deflationary currency is more fair or at least preferable to inflationary currencies. Ok…sure, I guess. That doesn’t mean it is an ideal currency. Markets work through price signals. And both inflation and deflation mess with price signals. If inflation encourages people to risk (through investment) or spend their money in order to preserve their currency, then deflation encourages people to hoard their currency rather than put it to use. Neither is preferable.
If you want to produce it, you need to allocate productivity to locate, acquire and process it. And this is the key to gold’s usefulness as a store of value.
The difference between gold and bitcoin on that measure is that:
discovering and producing gold requires many different non-fungible factors of production – unskilled labor, skilled labor, machinery, chemicals, energy, etc
discovering and producing bitcoin requires surplus electricity.
Further the intrinsic features of that gold output are also unique compared to all the alternatives ways those inputs could be combined to produce something. The intrinsic features of Bitcoin are non-existent compared to any other blockchain token.
“discovering and producing gold requires many different non-fungible factors of production – unskilled labor, skilled labor, machinery, chemicals, energy, etc
discovering and producing bitcoin requires surplus electricity.”
As has become par for the course, this statement from JSafe is just false on its face.
You can go buy a pan, and climb up into BLM land and find a stream and get gold. I used to do it with my Pops in the summer on camping trips.
Likewise, if producing bitcoin required mere “surplus electricity”, then JSafe could stick his finger in a light socket and churn out bitcoin. But instead, producing bitcoin requires significant investment in ASICs that are pretty much only useful for mining bitcoin (they are even ill suited for producing other cryptos). And you can’t just plug them into a wall socket. They require dedicated capacity and cooling. Mining bitcoin at scale is essentially a one way investment. You will never be able to recoup those costs if you are wrong.
Even if you think you can make money with your GPU (which these days you cannot- though there are other reasons to use excess capacity to mine BTC) you are relying on complex machinery that is orders of magnitude more complex to produce than a gold-pans or even sophisticated mining machinery. That is equipment that would otherwise be used for gaming, movie making, and AI or other massively parallel computations.
So whether you are taking investment money to acquire datacenters, ASICs, supporting infrastructure, AND spare electricity to produce bitcoin, or you are using up general purpose hardware and electricity to convert dollars to BTC anonymously, you are making exactly the tradeoffs that I described in my original post.
But please, tell us more, JSafe. I am sure one of us enjoys watching you type.
You can go buy a pan, and climb up into BLM land and find a stream and get gold. I used to do it with my Pops in the summer on camping trips.
Placer gold is always the stuff of gold rushes. Where massive numbers of surplus unskilled labor rush around the world. Making prostitutes, hotel owners, pick/shovel/pan makers, and Levis rich – but not the panners. And that then pulls in skilled labor, machinery, massive capital, etc in order to find the origin and produce serious volume. But hey – I’m sure you made your first fortune panning for gold in a place that is still top-secret so only you can produce tons.
Mining bitcoin at scale is essentially a one way investment.
19/21 (90.5%) of all bitcoin that will EVER be produced has already been produced. Meaning that new production is completely marginal and it mostly serves simply to create hype and a transaction for the bitcoin blockchain. Yes – going forward it will take surplus computing power and such – but the EXISTING supply of bitcoin (90% of it) required mainly electricity. It was so cheap to produce that in the early days bitcoin was exchanged for pizza – both to consume the pizza and for people to figure out how it all worked and raise awareness. THAT is the value that bitcoin has captured. Not the minimal 10% of supply that is left to be produced.
Non-bitcoin blockchain is quite a bit different. But for most of those chains and tokens, the captured surplus value of those is mostly in the future. For bitcoin – the value is now in the past. The bitcoin narrative in 2100 will be:
From 2008 to 2016, a tiny group of
pet rockcryptocurrency enthusiasts created a monopoly that is so valuable and invulnerable to competition that the world decided to base global currency on it for future generations. Really? You think?Oh – and I am not a gold bug at all. It IS however a convenient way of explaining the embedded value of surplus production currency – the classical Say’s Law view of currency.
“But hey – I’m sure you made your first fortune panning for gold in a place that is still top-secret so only you can produce tons.”
No, I had fun with my Pops. But it completely invalidates the points you made, insisting that gold is somehow different than Bitcoin because of “many different non-fungible factors of production”. So instead you are distracting with irrelevant details hoping that people don’t notice the terrible and obvious false statement that you made. (Spoiler: Everybody notices, and nobody was fooled).
“Yes – going forward it will take surplus computing power and such – but the EXISTING supply of bitcoin (90% of it) required mainly electricity. It was so cheap to produce that in the early days bitcoin was exchanged for pizza – both to consume the pizza and for people to figure out how it all worked and raise awareness.”
Again, nobody is fooled by your attempt to re-litigate the terribly stupid statement you made. You said “discovering and producing bitcoin requires surplus electricity,” not, “At one time it required only surplus electricity.”
The fact remains that in order to mint new bitcoin today, you do not need merely surplus energy. And that has not been the case for many years. As early as 2014 it was abundantly clear that mining for Bitcoin required specialized hardware, and people were creating GPU rigs for mining. This is entirely consistent with my argument that Bitcoin required making tradeoffs vs other uses of productivity, and entirely inconsistent with your statement that all you need is spare energy.
In fact it is well accepted by anyone who has studied this issue and isn’t just making shit up on the internet (like you) that even the first bitcoins mined were done with a specialized mining network…run and operated by Satoshi Nakamoto him/her/themself.
Your argument about 99% of bitcoin already being mined is, again, just a distraction. If you actually read my original post, I point out that the cap is very specifically what de-couples bitcoin from being a store of excess productivity. While that makes you inadvertently support my point, it doesn’t change just how wrong it was to insist that a difference between Gold and Bitcoin is that the former uses “many non-fungible factors of production” while the latter merely requires “surplus energy”.
For fucks sake man, just give up. You made a stupid statement trying to look smart, and instead came out looking foolish. Just move on.
You’re in the lala land of cult worship so there is no point arguing anything.
There are massive differences between gold and Bitcoin. A major one is linguistically obvious (and has economic consequences too) – one of those words is capitalized and one is not.
But whatever. Maybe you will succeed in turning capital B- bitcoin into capital U US dollar as reserve currency. Who cares really. And you’re not actually interested either. You just want to hype a story.
“You’re in the lala land of cult worship so there is no point arguing anything.”
Translation: JSafe has realized that he looked foolish, so he is going to hope that declaring me a cultist saves his pride. But what cult am I worshiping at? The cult of gold? I have at numerous places described attributes of gold that detract from its ability to serve as a currency. Am I worshiping the cult of Bitcoin? The entire OP that he was responding to was a critique of Bitcoin and its 21 Million coin cap. So if I worship Bitcoin so much, why did I start my post with “The problem with Bitcoin…”?
“one of those words is capitalized and one is not.”
So now JSafe is hair splitting. Rather than admitting his original statement about *the* difference between Bitcoin and gold as a store of productivity, he is now (again) trying to distract with a bunch of chaff thrown into the air. He thinks that a false analogy between a metal and a specific crypto currency is somehow novel, but it isn’t.
When we refer to gold currencies, they are capitalized- eg the American Gold Eagle- and when we refer to the more general class of currencies, we call it gold. Just as we capitalize the currency Bitcoin, while generally not capitalizing the general class, crypto.
But even if this were some glaring and fundamental difference between the two, so what? I never argued that the two were equivalent. In fact, my whole post was explaining how the two productivity tradeoff mechanisms were diverging. He is the one that tried arguing that the fundamental difference was that gold requires specialized equipment and labor while Bitcoin required only surplus energy. It was an incorrect statement, and the fact that he is pivoting to other differences shows that even he realizes it.
“But whatever. Maybe you will succeed in turning capital B- bitcoin into capital U US dollar as reserve currency. Who cares really. And you’re not actually interested either. You just want to hype a story.”
And so now, JSafe completes his pivot. It’s not that I’m just a cultist. No, I am trying to replace the dollar with Bitcoin- despite opening my post with “the problem with Bitcoin…”. Or I am hyping “a story”. A story that I guess I never posted.
Again, JSafe made a hasty comparison, declared as expert fact, and got called on it. Rather than withdrawing his silly-on-its-face assertion, he has doubled down, tried changing the subject, and is now accusing me of motivations based on caricatures in his head, unsupported (if not contradicted) by the posts he is replying to. It has been a truly enjoyable ride, JSafe. Have a great week.
We have millennia of evidence for use of gold as a store of wealth. We have virturally none for cryptos. And there is FAPP an infinite supply of cryptos, any difficulty of “extraction” being an artificial constrain on their issuance.
There is no great technological difficulty in issuing digital certificates of ownership of gold, hence removing the need to physically transfer gold from place to place, while providing the rapid transfer of value that people seem to need. The major drawback of such a digital certificate is that as long as physical gold is required to be held somewhere, it is insufficiently decentralised, and hodlbros want that.
Apparent there is a crypto called a hodlbro…crypto bros, then.
“There is no great technological difficulty in issuing digital certificates of ownership of gold, hence removing the need to physically transfer gold from place to place,”
This is actually what caused gold’s demise as a currency. There is no trustless mechanism for ensuring that there is gold backing the certificate in your hand. You have to trust that a [holder] actually has the reserves, and what will always happen is what has typically happened in history: the trustee eventually debases its certificates by playing “fractional reserve” games and eventually leaving the backing all together.
That intermediary problem is exactly the problem that blockchain solves. But it doesn’t mean the blockchain token is a store of any more value than is necessary to pay for the tech help to get items of real value to be digitized onto a particular blockchain.
Precisely so.
The blockchain does not solve this, ffs.
If I have a digital certificate, all that the blockchain tells me is that the chain of custody OF THAT CERTIFICATE is accurate. It tells me nothing about the item that was “digitized”. You have to trust a third party that says, “We’ve watermarked this gold and now it is represented by this certificate”. You have no proof that the gold still exists and wasn’t “digitized” into some different currency that now also has a claim on it, or traded for drugs and whores on the street the second that person traded the certificate for something of value.
So ultimately, this means your 3rd party has to actually TAKE the gold and hold it in custody. And now when someone offers you “Digital Gold” you have to trust that the 3rd party is truthful and accurate when they say, “This digital certificate represents the gold that is stored in our vault.”
And now we are back to exactly the same problems as when the Mogul Empire issued its first gold certificates back in antiquity. You find that, SURPRISE, they haven’t been keeping that gold locked in a vault. Because vaults cost money to build. And they have to be guarded by people who want to eat. And that assumes there is no cost associated with printing, circulating and preventing counterfeiting of your “gold certificates”.
So one of two things happen- either your gold certificate loses value over time, to reflect the cost of storing “your” gold, or a fractional reserve system is actually in place allowing the 3rd party to earn money off of it while you are walking around with a gold certificate. Even assuming this 3rd party is BEYOND REPROACH, and you trust them, there is still considerable risk that when you want your gold (such as during a bank run) your gold will not be available to you. But of course, these 3rd parties are not beyond reproach. They squander your gold on imperial ambitions that lose money. They refuse to honor your certificate if you are the wrong type of person. They fail.
Blockchains solve none of this, because the whole purpose of the blockchain is to eliminate trust in a 3rd party, and you can’t do that when “digitizing” real world shit.
Gold, silver, and other precious metals have problems as currency, just as fiat currencies have their own problems.
* They fluctuate in value. A one ounce gold coin now can be worth significantly more or less in a year, and people may not accept the nominal value on the face of the coin.
* You need two or three different metals for a viable currency, traditionally gold, silver, and copper; no one wants to carry around copper $1 coins or (try to) keep track of $1 gold coins. But because their values fluctuate independently, their nominal value differences are seldom in sync. It’s called bimetallism or trimetallism.
* Your coins have to have an actual value reasonably close to to their nominal value. If too low, people will treat them as counterfeit; if too high, people will melt them down.
* Plain metal tokens redeemable for real precious metals solve the real value problem but need to be backed by long term solid reputations or they won’t be accepted. They will also be more tempting to counterfeit.
* Paper notes don’t last as long as hard metal coins and have the same reputational and counterfeiting problems as metal tokens.
There is no need for government monopolies on currencies. Private currencies have existed before. The only thing governments bring to the table is permanency, but they add volatility at the whim of politicians.
“There is not need for govt. monopolies on currencies.” Correct!
There is no need for “The Most Dangerous Superstition” (by Larken Rose). It will destroy humanity.
The only option to coercive govt., i.e., authoritarianism, is a govt. based on reason, rights, choice, e.g., voluntarism. That will happen when enough people are convinced to stop self-enslaving, e.g., voting for rulers to run their lives and forcing themselves on dissenters who just want to “live & let live”, e.g., self-govern.
Gold easily becomes dangerously radioactive, and it is not easy to imagine bitcoin being worth much if there are no terawatt-hours of electrical power being generated. Making kWh a basis for currency has to stir generating capacity into existence. The relative worth of each fuel could then be scrutinized without the chaff. Detecting counterfeit power? No problemo.
Hey, while there is not enough income, earning income for your hobby is always very profitable. Blockchain has solved the problem of no randomness in some fraudulent casinos. Gambling has become a part of my life and is often profitable. I often play here for example https://tower.bet/ . This technology makes every transaction, spin or roll of the dice as transparent as possible.