Written by: Liu Ye Jing Hong
Author's Note
As a practitioner in the Web3 industry for many years, I have witnessed and participated in the birth and evolution of countless new concepts, narratives, and innovations. From DeFi, NFT, and DAO to various public chains, side chains, and L2 solutions, the industry seems to be constantly chasing the latest, coolest, and most imaginative innovations.
But in this ongoing wave of innovation, when I revisit Bitcoin's white paper and reflect on its original design intent and economic essence, I find many new insights. Bitcoin is undoubtedly the starting point of the entire industry and the most fundamentally revolutionary invention. Its simplicity, restraint, and algorithm-based trust mechanism still remain unmatched by later developments.
After experiencing so many new narratives, reflecting on Bitcoin itself and re-examining its unique position and future possibilities in the history of monetary evolution may be more meaningful than blindly chasing new trends. I hope this article can help you step away from the noise, look back at the essence, and spark new thoughts.
Introduction
Currency is one of the most profound and widely agreed inventions in the progress of human civilization. From barter to metal currency, from the gold standard to sovereign credit money, the evolution of currency has always been accompanied by changes in trust mechanisms, transaction efficiency, and power structures. Today, the global monetary system faces unprecedented challenges: currency overissuance, trust crises, worsening sovereign debt, and geopolitical shocks caused by dollar hegemony.
The birth of Bitcoin and its expanding influence compel 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 technology and algorithms but also in its status as the first 'bottom-up' monetary system driven by users in human history, challenging the millennium paradigm of state-dominated currency issuance.'
This article will review the historical evolution of currency anchoring objects, criticize the dilemmas of the current gold reserve system, analyze the economic innovations and limitations of Bitcoin, explore Bitcoin as a thought experiment for future value anchors, and look ahead to the possible diverse evolutionary paths of the global monetary system.
One, The Historical Evolution of Currency Anchors
1. The Birth of Barter and Commodity Money
The earliest economic activities of humanity primarily relied on barter, where both parties in a transaction had to possess exactly what the other desired, greatly limiting the development of production and circulation. To solve this problem, commodities with universally accepted value (such as shells, salt, livestock, etc.) gradually became 'commodity money,' laying the groundwork for later precious metal currencies.
2. The Gold Standard and Global Settlement System
As civilization developed, gold and silver became the most representative general equivalents due to their scarcity, ease of division, and resistance to alteration. Ancient empires such as Egypt, Persia, Greece, and Rome used metal currency as symbols of state power and social wealth.
By the 19th century, the gold standard was established globally, linking national currencies to gold and standardizing international trade and settlements. England officially established the gold standard in 1816, with other major economies gradually following suit. The greatest advantage of this system lies in the clarity of the currency's 'anchor' and the low trust costs between countries, but it also led to currency supply being limited by gold reserves, making it difficult to support the expansion of industrialization and globalization (such as the 'gold rush' and deflation crises).
3. The Rise of Credit Money and Sovereign Credit
In the first half of the 20th century, the two world wars completely impacted the gold standard system. The Bretton Woods system was established in 1944, linking the dollar to gold, and other major currencies were then linked to the dollar, forming the 'dollar standard.' In 1971, the Nixon administration unilaterally announced the decoupling of the dollar from gold, officially entering the era of credit money, where countries issue currency based on their own credit and regulate the economy through debt expansion and monetary policy.
Credit money has brought great flexibility and economic growth space, but it has also sown the seeds of trust crises, hyperinflation, and currency overissuance. Third-world countries have repeatedly fallen into currency crises (such as Zimbabwe, Argentina, Venezuela, etc.), and even emerging economies like Greece and Egypt are struggling amid debt crises and foreign exchange turbulence.
Two, The Real 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 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 following World War II but has also led to significant concentration and opacity issues.
For example, Germany once announced it would repatriate part of its gold reserves from the U.S., one reason being distrust of the U.S. treasury's accounts and the long-standing inability to conduct on-site audits. Whether the treasury's accounts match the actual gold reserves is difficult for outsiders to verify. Additionally, the proliferation of derivatives like 'paper gold' further weakens the correspondence between 'paper gold' and physical gold.
2. The Non-M0 Attributes of Gold
In modern society, gold no longer possesses the attributes of daily circulating currency (M0). Individuals and businesses cannot directly settle daily transactions with gold and find it difficult to hold and transfer physical gold directly. The primary role of gold is more as a settlement tool between sovereign nations, a reserve for large assets, and a hedge in financial markets.
Gold settlements between nations typically involve complex clearing processes, long time delays, and high security costs. Moreover, the transparency of gold transactions between central banks is extremely low, with account checks relying on the trust endorsement of centralized institutions. This has rendered gold's role as a global 'value anchor' increasingly symbolic rather than having real circulation value.
Three, The Economic Innovations and Real Limitations of Bitcoin
1. Bitcoin's 'Algorithmic Anchoring' and Monetary Attributes
Since its inception in 2009, Bitcoin's characteristics of fixed supply, decentralization, and transparency have sparked a new round of global contemplation regarding 'digital gold.' The supply rules of Bitcoin are written into algorithms, and the total limit of 21 million coins cannot be changed by anyone. This 'algorithmic anchoring' scarcity is similar to the physical scarcity of gold but is even more thorough and transparent in the global internet era.
All Bitcoin transactions are recorded on the blockchain, and anyone globally can publicly verify the ledger without relying on any centralized institution. This property theoretically greatly reduces the risk of 'discrepancies between the ledger and physical assets' and significantly enhances the efficiency and transparency of clearing and settlement.
2. Bitcoin's 'Bottom-Up' Diffusion Path
Bitcoin fundamentally differs from traditional currency: traditional currency is 'top-down' issued and promoted by state power, while Bitcoin is 'bottom-up' spontaneously adopted by users and gradually spreads to enterprises, financial institutions, and even sovereign nations.
Users lead, institutions follow: Bitcoin was initially adopted spontaneously by a group of cryptography enthusiasts and libertarians. As network effects strengthened, prices rose, and application scenarios expanded, more individuals, enterprises, and even financial institutions began to hold Bitcoin assets.
Nations passively adapt: Some countries have designated Bitcoin as legal tender, while others approve 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 effects of Bitcoin have broken through sovereign boundaries, with large numbers of users in both developed countries and emerging markets spontaneously adopting Bitcoin in daily life, asset reserves, and cross-border transfers.
This historic shift indicates that whether Bitcoin can become a global currency no longer entirely depends on the 'approval' of states or institutions, but rather on whether there are enough users and market consensus.
Insights on the Future Monetary Landscape:
The possibility of separating power from currency: Currency no longer necessarily depends on state power, but can belong to the internet, algorithms, and global user consensus.
State support becomes 'the icing on the cake': Whether Bitcoin becomes a global currency no longer completely depends on legislative support from state institutions, as long as there are enough users and social recognition.
New Sovereign Challenges: Sovereign nations may have to adapt or even passively accept the impacts brought by 'user autonomous currency' in the future.
Critiques and Reflections:
Limitations and Risks of User Autonomy: How to manage risks such as extreme volatility, governance challenges, and 'black swan' events without sovereign backing?
'Can a bottom-up approach respond to global crises? When facing systemic financial crises or large-scale technical attacks, is a currency system lacking central coordination more fragile?'
Redistribution of Power: Has Bitcoin really 'decentralized'? Or will new oligarch centers emerge?
3. Real Limitations and Critiques
Although Bitcoin theoretically and technically possesses revolutionary characteristics, it still faces many limitations in real-world applications:
High price volatility: Bitcoin's price is easily influenced by 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 can only process a limited number of transactions per second, with long confirmation times, and the proof-of-work mechanism consumes vast amounts of energy.
Sovereign resistance and regulatory risks: Some countries adopt a negative or even suppressive attitude towards Bitcoin, leading to fragmentation in the global market.
Uneven wealth distribution and technological barriers: Early Bitcoin users and a small number of large holders control a significant amount of Bitcoin, leading to wealth concentration. Moreover, ordinary users require a certain level of technical knowledge to participate, making them vulnerable to fraud and risks such as losing private keys.
Four, Similarities and Differences Between Bitcoin and Gold: A Thought Experiment on Future Value Anchors
1. The Historical Leap in Transaction Efficiency and Transparency
In the era of gold as a value anchor, international large-scale gold transactions often required planes, ships, armored vehicles, etc., for physical transfers, which not only took several days or even weeks but also incurred high transportation and insurance costs. For instance, the German central bank once announced repatriating its gold reserves from abroad, a plan that took years to complete.
More critically, there exists a serious issue of opacity and difficulty in auditing the global gold reserve system. The ownership, storage locations, and actual existence status of gold reserves often rely solely on unilateral statements from centralized institutions. Under this system, the trust costs between countries are extremely high, constraining the robustness of the international financial system.
Bitcoin addresses these issues in a completely different way. Ownership and transfer of Bitcoin are recorded on-chain, allowing anyone globally to verify in real time and openly. Whether individuals, enterprises, or countries, as long as they possess a private key, they can allocate funds at any time without physical transfer or third-party intermediaries, with global settlement in just a few minutes. This unprecedented transparency and verifiability gives Bitcoin efficiency and trust foundations in large settlements and value anchoring that gold cannot match.
2. The 'Role Layering' Concept of Value Anchors
Despite Bitcoin's far greater transparency and transfer efficiency compared to gold, it still faces many limitations in daily payments and small-scale circulation—issues like transaction speed, transaction fees, and price volatility make it difficult to serve as 'cash' or M0 in practice.
However, referring to monetary layering theories like M0/M1/M2, we can imagine the future monetary system having the following structure:
Assets like Bitcoin, which serve as 'anchors,' function as M1+ level value stores and large settlement tools, similar to gold's position in central bank assets but more transparent and easier to settle.
Stablecoins, sovereign digital currencies (CBDCs), and second-layer networks (like the Lightning Network) based on Bitcoin fulfill the functions of daily payments, micropayments, and retail settlements. These 'sub-currencies' are anchored by Bitcoin or guaranteed by it to achieve a balance of circulation efficiency and value stability.
Bitcoin has become a 'general equivalent' and 'measuring unit' of social resources, widely recognized in the global market, yet it is not directly used for daily consumption but rather serves as the 'ballast' of the economic system, much like gold.
This layered structure can utilize Bitcoin's scarcity and transparency as a global 'value anchor,' while also leveraging technological innovations to meet the convenience and low-cost demands of daily payments.
Five, Possible Evolution of the Future Monetary System and Critical Thinking
1. Multi-layered, Multi-role Currency Structure
The future monetary system is likely to no longer be dominated by a single sovereign currency, but rather coexist in a three-layer structure of 'value anchor - payment medium - local currency,' with cooperation and competition running parallel.
Value Anchor: Bitcoin (or similar digital assets) serves as a decentralized global reserve asset, undertaking roles such as cross-border settlement, central bank reserves, and value hedging as 'high-level currencies.'
Payment Medium: Stablecoins, sovereign digital currencies, Lightning Networks, etc., anchor Bitcoin or sovereign currencies to achieve daily circulation, payments, and pricing.
Local currency: Each country's currency continues to play a role in regulating and managing the local economy, achieving tax, social welfare, and economic policy goals.
In this multi-layered structure, the three main functions of currency (medium of exchange, measure of value, store of value) will be more clearly divided among different currencies and levels, enhancing the global economy's risk dispersion and innovative capacity.
2. New Trust Mechanisms and Potential Risks
But this new system is not without risks. Can algorithms and network consensus truly replace the credit of state sovereignty and central institutions? Will Bitcoin's decentralized characteristics be eroded by oligarchs of computing power, protocol governance loopholes, or technological advances? Global regulatory divergences, policy conflicts, 'black swan' events, etc., may all become unstable factors for the future monetary system.
In addition, sovereign nations may restrict the expansion of Bitcoin through strict regulations, taxes, and technological blockades to protect their own interests. Whether Bitcoin can truly achieve global consensus and maintain its 'digital gold' status in a 'bottom-up' manner still requires the test of time.
Conclusions and Open Questions
Looking back at the evolution of money, from barter to the gold standard and then to credit money, each change of the 'anchor' has been accompanied by profound transformations in trust mechanisms and social organization. The emergence of Bitcoin shifts the 'value anchor' from physical resources and sovereign credit to algorithms, networks, and global user consensus. Its 'bottom-up' diffusion model, transparent and verifiable ledger, and global network effects provide a new thought experiment for the future monetary system.
However, the road to the Bitcoin revolution is not straightforward. Issues such as price volatility, governance challenges, regulatory risks, and technological barriers need urgent resolution. Whether Bitcoin can ultimately become the 'value anchor' or 'general equivalent' of the global monetary system depends not only on technological innovation and user consensus but also on the restructuring of global economic, social, and political structures.
Open questions:
If not Bitcoin, what will be the future value anchor?
How will the ultimate trust foundation of currency evolve?
Between state power, user autonomy, and algorithmic governance, what kind of balance will the future global value system reach?
As we continuously chase the next trend amid new narratives and technological waves, perhaps the most worth focusing on are those seemingly 'simple' yet fundamentally penetrating innovations. Bitcoin, as a monetary experiment of the internet age, deserves our deep and ongoing contemplation.
