Bitcoin’s a Digitized Tally Stick… Not Gold
The tally stick was a medieval medium of exchange and conjured form of currency that worked like this:
‘The split tally was a technique which became common in medieval Europe, which was constantly short of money (coins) and predominantly illiterate, in order to record bilateral exchange and debts. A stick (squared hazelwood sticks were most common) was marked with a system of notches and then split lengthwise. This way the two halves both record the same notches and each party to the transaction received one half of the marked stick as proof. Later this technique was refined in various ways and became virtually tamper proof. One of the refinements was to make the two halves of the stick of different lengths. The longer part was called stock and was given to the party which had advanced money (or other items) to the receiver. The shorter portion of the stick was called foil and was given to the party which had received the funds or goods. Using this technique each of the parties had an identifiable record of the transaction. The natural irregularities in the surfaces of the tallies where they were split would mean that only the original two halves would fit back together perfectly, and so would verify that they were matching halves of the same transaction. If one party tried to unilaterally change the value of his half of the tally stick by adding more notches, the absence of those notches would be apparent on the other party’s tally stick. The split tally was accepted as legal proof in medieval courts and the Napoleonic Code (1804) still makes reference to the tally stick in Article 1333. Along the Danube and in Switzerland the tally was still used in the 20th century in rural economies.’ (wikipedia)
The Bitcoin analogy to the tally stick is uncanny, and logical. “Money” has not been money since August 15th, 1971, and Nixon’s proclamation that the US by-decree fiat dollar will be a temporary condition is now known to be a lie. So the digital-age parallel universe evolution of a digitized tally stick to the fiat USd is not unexpected. What is unexpected is comparing the digitized tally stick to gold. Bitcoin bears no relation to gold. Let’s consider why, based on a previous example of the Persian gold daric to prove that case.
The gold daric dates from the ancient Achaemenid empire of Cyrus the Great, circa 2,400 years ago; it consists of 8 grams of gold and sells for about $3000 US depending upon condition. The daric has an artistic rendition and composition, can be physically held and stored, and has maintained its value — and much more! — for a score and four centuries. The daric (or any gold coin) does not requite an internet connection or electronic wallet to exist. The daric has nothing in common with blockchain, the only intersecting feature being a value assigned by rarity… except blockchain is not “rare” or scarce.
To say that blockchain has value because blockchain is limited in scope based on the overall number of blocks that may mathematically be calculated doesn’t mean that blockchain is scarce or rare; the emperor’s clothes consist of 21 million possible renditions. That’s not scarcity. That’s not rarity. In the 2,400 year daric example, we are willing to part with by-decree dollars for a unique physical rendering of art and history in a rare metal form, of limited quantity that we can hold, physically store, and will maintain its long-term value, which our progeny can inherit. None of the foregoing applies to Bitcoin.
Not even the bit about limited quantity. That’s because the elusive and mysterious character(s) whose name roughly equates to “central intelligence” might mysteriously reappear to modify the Bitcoin protocol. Cryptoheads disagree, but that’s not the point. At present, the Bitcoin difficulty rating can be changed when solving the hash takes less than ten minutes. But from twenty zero’s to two, or to one hundred … do we really know that the protocol is inviolate? Or that whatever exploit the National Security Agency built into SHA256 (which forms the basis for blockchain) will never be exploited? Or that the Fed will never mandate the Federal Reserve Digital Dollar to be used as the basis for trading crypto…? Or that the SEC will never securitize tether …? Or whatever… the list is virtually endless. None of that applies to gold. Even though all the foregoing can be argued to infinity – or at least 139 years — there is zero equivalence between Bitcoin and gold.
And note well that The US Treasury will not rollover and allow Bitcoin to supplant the dollar in market share… Regardless of what Mex Keiser and Stacey say..
Now, do central banks consider Bitcoin to be gold? Of course not. Central Banks hold gold for the reasons stated above, that gold is the historic standard for money even after the Nixon Shock, is a real scarce substance, and can be physically held and stored for centuries. Gold can be swapped and leased. None of that applies to Bitcoin. Central Banks don’t hold Bitcoin (in any significant amount) because Central Banks expect to be here for more than 139 years when “central intelligence’s” blockchain is (theoretically) exhausted. And real gold can still be traded in an emergency when all computers and networks are down.
Which provides a real analogy. A limited number of gold darics exist. Is that a comparison to blockchain? No. A BTC hash will not be collectible 139 years from now. Or one year from now.. or ever. When BTC blockchain is exhausted no one will pay some amount for one example of the private key code over another, or anything at all. But 139 years from now a Persian gold daric will still be worth at least $3000 US and probably much more, while an example of BTC hash code will be worth nothing.*
Point being, BTC hash code is not “scarce”. The code is not “rare” in any physical sense. A Bitcoin hash code has no physical intrinsic value at any time. Not now. Not 139 years from now. Bitcoin’s SHA256 hash code is only worth what it can be digitally converted into, for now. And that’s why Bitcoin can never be equivalent to gold…
*True, you may not care about 139 years from now when Bitcoiners say a Ferrari is beckoning if you only invest in Bitcoin.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.