Commodities have intrinsic value. Gold, copper, oil, or electricity hold and increase their worth due to their use cases and increasing demand. These commodities are costly to produce and this is reflected in the price.

Conversely, currencies have no intrinsic value. The dollar, the euro, or the yuan are not useful per se and their value is just a reflection of the trust we put in the system. They are also free to produce in unlimited quantities.

Bitcoin, on the other hand, is the first asset in history that has no intrinsic value, and yet it is costly to produce. This makes BTC a unique asset in the sense that is both a commodity and money, intangible yet expensive, and digital yet scarce.

These characteristics make Bitcoin an oddball and markets and governments don’t know how to react to a decentralized asset that is transparent, immutable, and permissionless.

Bitcoin is fighting on many fronts. On one hand, it’s competing with fiat money and specifically the dollar as a world reserve currency.

On the other front, it is competing with gold as a reserve of value.

Bitcoin could become money, the world reserve currency, and the best store of value. But how is it measuring up against its foes? Does it have what it takes?

Let’s see.

Bitcoin vs Fiat

Fiat money can be printed out of thin air, infinitely, and at zero cost. While this might seem like a strength for some, it is also a big flaw and it could lead to the collapse of the current financial system.

The fact it has no minting cost makes fiat currency a very soft asset. The only limitation to printing more is the common sense of those in charge of the money printer.

Unfortunately, as we have seen in recent times, central banks don’t have a lot of restraint when it comes to increasing the monetary base. Hence the inflation.

It could be argued that having an elastic supply and the ability to generate liquidity during a crisis is useful and necessary, however, the price we are paying in terms of debt, devaluation, and inflation is way too high and benefits only the elite.

Bitcoin is not only scarce and immutable, but it is also very costly to produce. Right now, to mine 1 BTC costs roughly $20k. It is not limited only by the algorithm but also by the price of energy and the difficulty adjustment.

When measured in Bitcoin, prices tend to go down and not up like we are used to, making it a deflationary currency.

Contrary to popular belief, deflation is not only good but also natural. As humans become more sophisticated and efficient, productivity goes up while costs go down.

A laptop is a million times more powerful now than 50 years ago. It is also orders of magnitude cheaper.

Why wouldn’t it be?

The more know-how, experience, and technology we use, the lower the cost of production. If things are getting costlier instead of cheaper, it’s because we are doing something wrong.

Since technology makes production more affordable due to scaling and almost everything we consume is related to technology (including food), how come prices keep increasing for most goods and services?

The answer is quite simple: Monetary inflation.

The only reason your house, food, or electricity keeps appreciating is that we are measuring it with the wrong tool.

In most cases it is not the bananas, the second-hand cars, or the utility bills increasing in price, it’s the value of money decreasing.

On one hand, we have engineers, farmers, and technologists working hard to produce better goods at a lower price. On the other hand, we have governments printing money and destroying that very value it was so hard to create.

Debt

Printing money is equivalent to borrowing from the future. Most nations in the developed world have reached a GDP to Debt ratio higher than 100%.

This means most nations have problems affording the capital and even the interest payments are a struggle.

The fiat system as it stands offers no solution to this problem and the only way out is to kick the can down the road or do a hard reset. Both options are far from ideal.

Markets are smelling a rat and starting to prepare accordingly.

There are only a few options — commodity-backed currencies, CBDCs, and Bitcoin. Some seem more promising than others.

Gold Standard

The BRICS countries have shown their intention to move away from the dollar and into a commodity-backed currency.

China and Russia have been accumulating gold in recent times in preparation for the switch.

They also have other commodities like oil, gas, metals, minerals, etc that could help create a collateralized economy.

This could be in principle more credible than the fiat system which is backed by nothing. However, who is going to audit the Chinese or Russian central banks? Can anyone trust their figures?

Nobody knows how much gold is held in the Federal Reserve (probably next to nothing) so a system based on gold won’t be credible unless it comes with transparency.

Granted, if the only option is getting gas from Russia some will have to take their word for it and accept the digital Ruble or Yuan, but generally speaking, this is not a system that is likely to replace the dollar.

CBDCs

Central Bank Digital Currencies are not a solution either. This system is basically a digitalization of the current fiat money in which governments acquire more power and citizens lose freedom and human rights.

CBDCs are not a tool to curtail inflation, debt, or any of the design flaws associated with the fiat system. Even though there is very little doubt they’ll be implemented, it’s still very soft money.

Bitcoin

Bitcoin is the only asset that is hard to make and at the same time digital. It has the best of both worlds. On one hand, the Proof of Work mechanism ensures that the monetary policy is stable and predictable. On the other hand, it’s fully digital which makes it very convenient to transfer, store and secure.

Gold has the usual problems of a tangible asset — hard to verify, secure, and store — which makes it a weak candidate for its use as collateral.

Bitcoin is a bear asset. Proof of ownership can be established in seconds and it can be safely used as collateral by multi-signature arrangements or other mechanisms.

The blockchain is fully transparent and easily verifiable which makes Bitcoin the perfect asset to back any financial transaction and it could, with time, become the base for a global reserve currency.

Conclusion

Gold is a hard asset. In fact, it is so hard that it becomes unusable as money.

The dollar is too soft. Anything with an infinite supply depreciates forever and creates hyperinflation and debt bubbles that eventually burst.

Bitcoin, on the other hand, is a perfect combination of hard money with the flexibility of a digital bear asset. It is scarce, divisible, transparent, immutable, and verifiable. It is auditable by anyone anywhere and it can be transferred at the speed of light at a very low cost.

These qualities make Bitcoin a potential contender to the dollar and a safer bet than going back to a gold standard that doesn’t really work in an ever-expanding digital world.

Bitcoin is the only asset with no intrinsic value that is costly to produce.

And that’s a real game changer.