Author: Bill Qian
This article is a sister piece to 'How to Protect Wealth in War'.
Let's discuss the following questions: First, what exactly is wealth storage; second, why has gold become a modern-day winner; and third, why is Bitcoin a better 'gold' for the 21st century and beyond.
For the past 5,000 years, there has been competition for the title of 'best store of value', but gold has gradually become the king of wealth storage due to its scarcity and the value consensus built over millennia. However, Bitcoin is slowly dissolving and shaking the market position of gold, while also providing our generation with epic opportunities for wealth creation and transfer.
The History of Money
To compare gold and Bitcoin, let's first talk about the largest category in this domain: money.
Money has three core functions: medium of exchange, unit of account, and store of value. From shells and copper coins to modern fiat currencies (like the US dollar and the euro), the medium of exchange and unit of account have continuously evolved. Meanwhile, gold, silver, land, and blue-chip stocks have long served as mainstream choices for value storage.
In the history of currency, the US dollar during the Bretton Woods System was one of the few currencies capable of simultaneously fulfilling the three functions of medium of exchange, unit of account, and store of value, but this was an exception, not the norm; moreover, the dollar's role as a three-in-one currency gradually disintegrated after Nixon's televised speech in 1971. Some may ask: Why do many people in emerging markets wish to use and save in dollars, even though data shows the dollar is continuously depreciating? I believe the answer is: because they have no better choice; their local currencies are worse. This topic leads us to stablecoins, which we will discuss next time.
How did gold become today's 'gold'?
A good target for wealth storage must meet five characteristics: scarcity, durability, portability, divisibility, and social consensus. Silver, land, and diamonds struggle to beat gold on these five metrics.
Thus, after thousands of years, gold has finally won the consensus and mindset of humanity, becoming almost the sole target for wealth storage.
What are the limitations of gold?
1. Storing gold requires expensive safe deposit boxes and insurance, and sometimes even transportation costs; the larger the amount, the higher the expenses. During World War II, the gold in the Paris bank vaults was directly plundered by the German army. This taught me the biggest lesson: the safe in the bank is not safe at all.
2. In extreme eras, the cost of liquidating gold is very high. Similar situations occurred during World War II; whether you were in Shanghai, Paris, or Amsterdam, gold transactions often faced high discounts, typically 30-50% lower than the spot price, with even greater discounts in high-risk environments. Worse still, trading gold in conflict zones often comes with severe personal risks—once others know you hold gold bars, robbery and kidnapping can happen at any moment.
3. Governments also undermine the reliability of holding gold through confiscation and price controls. For example, in 1933, the United States required citizens to surrender most of their gold at a fixed price below market value, or face severe penalties. Note: At that time, the US government required all citizens to surrender their gold at a fixed price of $20.67 per troy ounce. Subsequently, in 1934, through the Gold Reserve Act, the government revalued the official price of gold to $35 per troy ounce. This meant that the gold held by all citizens was 'devalued' by about 41% in just one year. The US confiscated over 2,600 tons of gold at that time, which directly changed monetary policy and laid the groundwork for the eventual end of the gold standard in 1971. All this happened in what was possibly the most respectably private property rights country in the world, 20th-century America.
4. Additionally, in today's digital economy, the limitations of gold being not sufficiently 'digital' are also evident. For example, you cannot send one kilogram of gold to your friend or another address through any electronic wallet.
In 2009, Bitcoin appeared! What exactly is it?
In 2009, Bitcoin, created under the pseudonym Satoshi Nakamoto, became the first decentralized digital currency. It operates on a global, public, open computer network (commonly known as the blockchain, which I find quite hard to understand)—a shared digital ledger that anyone can participate in and verify. New bitcoins are generated through 'mining': computers must solve complex mathematical problems, packaging transactions into new 'blocks' and adding them to the blockchain, thus 'miners' receive newly created bitcoins as a reward. This process ensures the security and smooth operation of the entire system.
