Why Bitcoin is Better Than Gold, with Wences Casares | Big Think

Bitcoin is a new digital currency that is perhaps the best form of money that we have ever seen. It’s important because most of us don’t understand money very well, and perhaps the concept that is hardest for us to understand about money is that money is and has always been a ledger.

And people often ask: "What is money backed with?" And the truth is money’s not backed with anything. It has never been backed with anything. The euro is not backed with anything in particular, and neither is any other currency in the world. And gold, for example, for that matter, is not backed with anything either.

Some people think that gold has value because we use it for jewelry, but it’s actually the other way around. Gold is valuable because it’s very scarce, and because it’s very scarce, it has been the best ledger we’ve found in 5,000 years. In bitcoin, we have something that is as good a ledger as gold, meaning it’s incredibly scarce. There will never be more than 21 million bitcoin. It’s even more scarce than gold.

But in history, we have had this tradeoff between things that have been very, very good store of value, like gold, for example, and things that have been good for payment, like the Portuguese escudo, the U.S. dollar, American Airline miles, or Facebook credits. Those things are better for payment, but they’re not so good as a store of value historically.

And the things that are good for a store of value, like gold, are not good for payments. In bitcoin, we have something for the first time that is incredibly superior to anything we have seen before as a store of value and also as a form of payment.

It’s hard to have a rigorous discussion about bitcoin without understanding money. And the best way to understand money is to understand the history of money. Anthropologists agree that there’s no tribe, much less a civilization, that ever based its commerce on barter. There’s no evidence. Barter never happened.

And that’s counterintuitive to most of us because we are taught in school that we first barter and then we made money because barter was too complicated. Well, barter never happened, and that’s one of the key myths about money.

So then you would ask the anthropologists, "So how did we do commerce before money if there was no barter?" There was no commerce. No, there was plenty of commerce, and the way that commerce would happen is that let’s say that someone in our tribe killed a big buffalo and I would go up to a person and say, "Hey, can I have a little bit of meat?" And that person would say, "No" or "Yes, Wences, here’s your meat."

And then you would go up to a person and say, "Hey, can I have a little bit of meat?" and that person said, "Yes, here’s your meat." And basically, we all have to keep track in our heads of what we owed other people or what our people owed us.

And then someone would come to me and say, "Hey Wences, can I have a little bit of firewood?" and I would say, "Sure, here’s your firewood." And I have to remember that I owe that person a little, that this person owes me a little.

And we all went about our business with these ledgers in our minds of who owes us what and what do we owe to whom. Very subjective system; often these debts didn’t clear or cleared in ways that were not satisfactory to both parties.

Until about 25,000 years ago, someone very, very intelligent came up with a new technology that really took off. So a person came to me and said, "Hey, can I have a little bit of firewood?" and I said, "Sure, here’s your firewood."

And this person said, "This time we’re going to try something different. Here are some beads for you." And I said, "I don’t want beads. I don’t care for beads. I don’t need beads." He said, "It’s not about that. We are going to use beads as the objective ledger of our tribe.

Instead of each of us having to remember what we are owed, the beads are going to keep track for us. An objective ledger to keep track of debt." It was such a successful technology that it took off, and in a couple thousand years it became impossible to find a tribe or a civilization…