A currency unit functions as money — a medium of voluntary exchange — only because people expect it to do so in the future. One reason why they expect a particular currency unit to be acceptable in the future is that it has been acceptable in the past. A monetary unit has to have historic value in most instances, if it is to function as money.
That is voluntary exchange. Any attempt by the state to create money, regulate money, or in any other way substitute its monopolistic power over the market’s pricing process is an inherent move towards the assertion of state sovereignty over money. Money has nothing to do with sovereignty, except the sovereignty legally of anyone to produce coins or would-be money, and then to persuade others to accept this money in exchange. State attempt to put its seal on money is an act of fraud.
Money has these characteristics:
High exchange value to weight ratio
Stable exchange value over time
Gold and silver possess these characteristics. Bitcoin too. They are evolving as complementary goods: gold the superior store of value, Bitcoin an easier-to-use medium of exchange. During last summer Bitcoin and spot gold have seen an over 80 percent daily price correlation, and clearly the market is assessing the two alternative assets as approximations of one another, driven no doubt by mounting worries about the state of the U.S. economy and the evolution of the U.S.–China trade war.
But critics may say: “Gold came to prominence as a widely accepted form of money, as a result of many centuries of market processes, whereas Bitcoin was simply invented, becoming within a few short years the center of gravity of the entire cryptocurrency complex.” A group of developers, the story goes, dropped Bitcoin into the market, whereafter it gained an insurmountable lead in usage and popularity. This argument has been employed by fiat-currency enthusiasts and anti-crypto goldbugs as a reason why Bitcoin will never (or can’t) become a form of money, and by a number of Modern Monetary Theory proponents in support of their foundational State Theory of Money. In the lattermost case: Bitcoin was invented out of thin air, but no matter what happens to its fundamental attributes it will only become money when a government accepts it as payment for taxes.
In precisely the same manner as humans have used (and eventually abandoned) shells, beads, large stone discs, and ultimately different kinds of metal (copper, silver, gold, etc.) for money, Bitcoin is at the creative nexus of several long trains of experimentation and invention. Both the rise of gold and the development of Bitcoin occurred via a series of iterative, uncoordinated processes: in the case of gold, in the marketplace for money; in the case of Bitcoin, as the product arising from numerous originally unrelated innovations in several markets, each of those, in turn, coming from different minds and institutions with wholly unrelated objectives at the outset.
For example: the history of cryptography, which is the cornerstone of Bitcoin’s security, goes back to ancient history; modern crypto history arguably begins in 1976, with the Diffie and Hellman paper on public-key cryptography. The proof-of-work protocol used to confirm new transactions and add new blocks to the blockchain finds at least some of its early inspiration in 1992 and 2002 papers (the latter after being proposed in 1997). Napster may have been the first popular firm employing a peer-to-peer architecture, but it certainly wasn’t the first. IRC and Usenet preceded it, and firms like Limewire, Gnutella, and Kazaa followed, each adding improved functionality along the way.
And innovation in money has a history spanning centuries — but directly related to the development of Bitcoin are private-company, community, and stamp scrip schemes going back over a century; local currencies; Chaum’s 1983 paper on digital currencies and the 1990 introduction of DigiCash; a number of dot-com-era entrants including Beenz, Flooz, CyberCash, and Confinity — later known as PayPal. Not to mention projects that tried explicitly to replicate gold in digital form, including e-gold, e-Bullion, and Liberty Reserve.
Interestingly, while gold is essentially established as the winner of the long-term process of monetary assessment and selection, Bitcoin is the current champion.
Bitcoin is as much a product of spontaneous order as gold. The view that it merely appeared when developers created it, taking their cues from an apocryphal white paper, erroneously casts aside a century of technological progress and, more directly, several decades of monetary innovation.