<blockquote>
<p>If someday this &quot;bitcoin standard&quot; does come to fruition, would it be susceptible to the problems that plagued the gold standard?</p>
</blockquote>
<p>A bitcoin standard implies that all major countries have pegged their currencies to Bitcoin.</p>
<p>It is extremely unclear how a country could peg its currency to Bitcoin, nor is there any incentive for a country to do so.</p>
<p>If we can wave away this complication — which is difficult to justify — the resulting system would face the same issues that most historical versions of the Gold Standard face. The issue is that trade deficit countries are forced to tighten fiscal/monetary policy to stem losses of the asset backing their currency, while surplus countries were not obligated to adjust policy.</p>
<p>One could argue that a 100% cover ratio would solve that problem, but that then implies that the entire worldwide monetary base is Bitcoin. That makes the adoption problem even more difficult.</p>

CC BY-SA 4.0
2021-02-15T09:09:41.550Z
"It is extremely unclear how a country could peg its currency to Bitcoin" - ??? It would be no different than pegging to gold, surely? Have a reserve of Bitcoin and interchange between your currency and Bitcoin whenever anyone asks.
Criticize SE actions means ban
CC BY-SA 4.0
2021-02-15T09:43:11.823Z
@user253751 : at least gold was a well-established and relatively stable currency. Bitcoin, on the other hand, looks more like a speculative bubble. Why would any countries peg their currencies to a speculative bubble?
vsz
CC BY-SA 4.0
2021-02-15T12:43:34.800Z
@vsz "Why" is often harder to answer than "How".
Taemyr
CC BY-SA 4.0
2021-02-15T12:50:22.100Z
@user253751 How does the US buy enough Bitcoin to back its currency 100%? Everybody see that coming, and refuses to sell at a reasonable price. Countries were able to do things like seize gold, and get gold via having trade surpluses with countries with gold. No countries have Bitcoin reserves to allow the trade channel to work.
Brian Romanchuk
CC BY-SA 4.0
2021-02-15T15:54:11.947Z
@BrianRomanchuk Countries could always invest in a fleet of supercomputers and mine the required bitcoin themselves. Of course this is probably even more impractical than seizing the bitcoin itself.
Sriotchilism O'Zaic
CC BY-SA 4.0
2021-02-15T18:35:37.340Z
Most of the coins are already mined, and the server capacity won’t just magically appear.
Brian Romanchuk
CC BY-SA 4.0
2021-02-15T19:25:17.940Z
Some countries are already starting to ban the use of Bitcoin, so if anything the trend is to do the opposite.
JonathanReez
CC BY-SA 4.0
2021-02-15T22:42:35.520Z
@BrianRomanchuk And if that scenario played out as you say with the price of bitcoin skyrocketing before the government could buy enough of it, that essentially impossible to make the switch to a "bitcoin standard". When they inevitably abandoned the plan the price of bitcoin would crash back down. It would become orders of magnitude more of a speculative bubble than it already is, which is saying something. Each time another large economy decided to attempt to join the bitcoin standard the price would again wildly fluctuate, destabilizing any economy already pegged to it
Kevin
CC BY-SA 4.0
2021-02-14T16:53:28.800Z
2021-02-14T16:53:28.800Z
Brian Romanchuk
<p>The only real advantage of &quot;bitcoin standard&quot; over gold standard is that bitcoin standard wouldn't drive gold prices up, thus depriving of it industries which need gold as a raw material.</p>
<p>Pretty much every other aspect of a monetary system based on a fixed quantity of monetary units remains the same, regardless of the nature of this monetary unit. For a start, there will be a problem of equal distribution (countries which currently don't have any bitcoins and accept them as a monetary standard will be just like those hedge funds who sold GameStop shares short, and now need to buy them no matter the price). And then there will be an ever-lasting problem of a fixed monetary supply which doesn't match the economic growth, and no way to stabilize the economy using monetary policies.</p>

CC BY-SA 4.0
2021-02-15T13:09:19.737Z
And that's because a "bitcoin standard" is a completely braindead idea. Either you just use bitcoin (or any other, more suitable crypto) INSTEAD of a local currency, or you don't
Hobbamok
CC BY-SA 4.0
2021-02-15T17:21:12.557Z
Since gold is a far less useful commodity than electrical power, I'm not sure that we can really call that an advantage, that aside, I think this hits the mark.
JimmyJames
CC BY-SA 4.0
2021-02-15T17:30:27.247Z
The problems with deflation are often underappreciated.  Every person who accumulates wealth in an inflationary system is driven to invest.  In a deflationary system, if I expect my money to grow in value over time, why risk investing it or loaning it?  Deflation is economic suicide.
JimmyJames
CC BY-SA 4.0
2021-02-15T17:34:27.453Z
@JimmyJames Thanks. I actually didn't think about it, but yeah, if bitcoin shortage would become a real economic problem, so will be electricity shortage.
Dmitry Grigoryev
CC BY-SA 4.0
2021-02-15T20:24:00.993Z
"If bitcoin shortgage would become a real economic problem, so will electricity shortgage" - @JimmyJames 's analogy doesn't work here. A government hoarding gold removes gold from the supply. A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever. You cannot convert the bitcoin back to electricity. Additionally, there is a fixed supply of bitcoins and once they are all mined, electricity is only used to transfer bitcoins. Merely holding coins doesn't affect the market for electricity.
JBentley
CC BY-SA 4.0
2021-02-15T21:35:41.783Z
@JBentley "A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever." These two sentences don't seem to go together.  I agree with the latter but not the former.  If a power plant produces N kWh per day and you use X kWh to mine bitcoins, the supply of energy from the power plant is N-X kWh per day.  And whatever resources were used to create that N kWh have been consumed.  And to be clear, electricity is a raw material in the production of many more things than gold is.
JimmyJames
CC BY-SA 4.0
2021-02-15T22:44:28.223Z
This isn't really an advantage because all you're doing is inflating the price of one resource rather than another. In this case it would drive the price of graphics cards and ASICS even higher than they already are, and it would take an immense amount of electricity to power the bitcoin mining industry to keep everything running.
Kevin
CC BY-SA 4.0
2021-02-16T08:14:47.203Z
@JimmyJames Yes, but your assumption that bitcoins will be mined is incorrect. There will only ever be 21 million bitcoins in existence. 18.5 million of those have already been mined. If governments hoard bitcoins they will do so (mainly, or entirely) by purchasing them, not mining. With the lightning network, low-priority transactions, and cryptocurrency exchanges, the electricity costs of transactions can be kept arbitrarily low
JBentley
CC BY-SA 4.0
2021-02-16T08:21:01.933Z
@KevinWells See my comment above. As the supply of unmined coins reduces, the future of bitcoin processing will continue to shift away from mining and towards processing transactions. Thus the demand for graphics cards and ASICS will be driven by the demand for transactions (quantity traded in a given time interval). Governments hoarding bitcoins will certainly produce an initial burst of demand for transactions (but see above for mitigating via the lightning network, etc.), but there will not be a continued effect in the same way that the permenant removal of gold from the market causes.
JBentley
CC BY-SA 4.0
2021-02-16T11:22:00.553Z
@JimmyJames "The problems with deflation are often underappreciated. Every person who accumulates wealth in an inflationary system is driven to invest." Really? Then why do so many, especially rich folks, store their money in overseas bank accounts, to prevent anything from touching it? Too much money is left stagnant in the current economic system. For me, personally, the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides. And my interest rates aren't even negative, just stupidly low.
Tom Lint
CC BY-SA 4.0
2021-02-16T12:53:21.483Z
@Hobbamok Bitcoin standard is not useless. Consider the immense transaction costs of Bitcoin (just like gold!) compared to the low transaction costs of US Dollars.
Criticize SE actions means ban
CC BY-SA 4.0
2021-02-16T13:27:19.017Z
@TomLint I thought it was pretty obvious that rich people who store their money in overseas bank accounts are most likely doing so for tax avoidance (or if they are also criminals, evasion). Also, JimmyJames said "why risk investing it **or loaning it**" (emphasis added). When you deposit money in your bank account you are doing exactly that - loaning it.
JBentley
CC BY-SA 4.0
2021-02-16T13:28:01.623Z
@user253751 yes, that is a reason. But that itself is solved better by a million things that are not the bitcoin standard, such as Layer 2 Solutions or just using a Crypto that isnt technically garbage to begin with.
Hobbamok
CC BY-SA 4.0
2021-02-16T13:44:01.753Z
@TomLint "the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides" - precisely: the presence of inflation has encouraged you to keep your money active in the economy, rather than stuffing it in your mattress. Deflation presents the opposite incentive - you can stuff money in your mattress and wait for its value to increase, _and so can everyone else_.
IMSoP
CC BY-SA 4.0
2021-02-16T17:21:35.747Z
@JBentley In order for the Bitcoin system to work, you must avoid anyone having enough  compute power to create arbitrary transactions.  There's no way to make the costs "arbitrarily low" in such a system.  It requires a constant input of resources or its defunct.
JimmyJames
CC BY-SA 4.0
2021-02-16T18:01:39.883Z
@JimmyJames *Transactions* require that, not storage. Note that this will be the case independently of whether or not any particular entity decides to acquire coins - doing so does not add to the need to keep the system decentralised, because Bitcoin is proof-of-work, not proof-of-stake. Even as far as transactions are concerned, you're looking at just one aspect but you're disregarding the others (layer 2 solutions, exchanges, etc.). E.g. you can in theory acquire all your needed coins piecemeal on an exchange and then transfer them out in a single transaction.
JBentley
CC BY-SA 4.0
2021-02-16T18:26:27.243Z
@JBentley I don't think you can have it both ways.  If there aren't constant transactions happening, how do you expect a large network of compute resources to exist that are ready to process them?  What's in it for the transaction processors?
JimmyJames
CC BY-SA 4.0
2021-02-16T21:41:00.267Z
@JimmyJames Wouldn't the size of the transaction processing infrastructure simply size itself depending on what's profitable, just like every other industry?  If there are less transactions then the excess computing power is shut down or sold off.  If there are more then people invest and buy more processors.  I don't think we could expect all transactions to disappear, so there will always be some nodes who can process them.  The nodes are allowed to charge a transaction fee, they can set the fee to whatever they need to stay in business.
user4574
CC BY-SA 4.0
2021-02-16T22:04:30.877Z
@user4574 Absolutely but if there aren't a lot of nodes in the network, it becomes trivial to spin up enough to take control.  The fundamental aspect that makes proof-of-work viable is that the work is hard to do.  If it becomes easy to process a transaction, the  system is no longer reliable.
JimmyJames
CC BY-SA 4.0
2021-02-17T10:26:13.470Z
@JimmyJames Not sure what you mean by having it both ways. My point isn't that you don't need constant transactions, my point is that if a large entity decides to buy and hoard a bunch of coins, this doesn't make any difference to the amount of processing that needs to be done to maintain the system as a whole, *apart from* at the exact moment that entity requires transaction(s) to acquire its coins. Whether the entity gets involved or not, the same processing is needed to maintain a flow of transactions.
JBentley
CC BY-SA 4.0
2021-02-17T10:28:26.157Z
@JimmyJames Thus, no burden is placed on the market for electricity by an entity which passively holds onto coins, other than an intiial demand for electricity, and that initial demand can be kept arbitrarily low through the use of intermediaries.
JBentley
CC BY-SA 4.0
2021-02-17T12:16:21.123Z
@IMSoP That's not what I meant, and the current interest rates are only as low as they are because of the never-ending stimulus package ran by the ECB. Prior to the 2008 financial crisis I never had any incentive to invest, because the interest rate on my savings account was close to or higher than the inflation. It is also not inflation that is causing me to invest, but, rather, the fee to host my bank account being higher than the interest I get on my savings. Under normal circumstances, the incentive to invest is non-existent.
Tom Lint
CC BY-SA 4.0
2021-02-17T14:26:39.350Z
@Jimmyjames If your money constantly increases in value you have no motivation to spend any today if it'll be worth twice as much tomorrow.
Shadur-don't-feed-the-AI
CC BY-SA 4.0
2021-02-17T14:40:37.627Z
@TomLint "Investing" is probably the wrong focus, to be honest; a better distinction is between _spending_ and _saving_: interest rates are currently low at least in part because the Central Banks want you to _spend_ your money, so that it's being put to use in the economy. When they want you to _save_ your money, e.g. if inflation is too high, they'll raise central rates, which raises bank rates, including savings accounts. Neither of these are more "normal circumstances" than the other.
IMSoP
CC BY-SA 4.0
2021-02-17T14:53:55.597Z
@JBentley If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from?
JimmyJames
CC BY-SA 4.0
2021-02-17T15:06:29.360Z
@JimmyJames "Everyone else" hoarding is not a realistic scenario. Money still needs to be spent even in a deflationary scenario, and there will be a demand for bitcoin by those wanting to convert other assets which are not increasing in value at the same rate. Such demand will push the price up to an equilbrium at which some people holding coins will sell them, as in any other economic scenario. In any case, this is beside the point. The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse.
JBentley
CC BY-SA 4.0
2021-02-17T15:10:33.203Z
@JimmyJames The main point is that gold and bitcoin are not comparable in terms of removing useful commodities from the market. Gold is finite in supply, electricity in theory at least can be generated from renewables.  Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back. Gold purchased removes gold from the market at a 1:1 ratio, a bitcoin transferred has a variable electricity cost which can be kept low. They are fundamentally different items
JBentley
CC BY-SA 4.0
2021-02-17T15:15:26.417Z
@JBentley " The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse." No this is the point entirely.  The bitcoin system requires the use of significant resources or if will collapse.  There's no third option.
JimmyJames
CC BY-SA 4.0
2021-02-17T15:29:46.333Z
@JBentley "Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back." I'm not sure why you think this is a good point.  Part of the reason gold has it's place as a medium of exchange is that it's not really very useful.  It's not 'consumed' in significant quantities by industry.  This made it superior to consumables like salt, for example.
JimmyJames
CC BY-SA 4.0
2021-02-17T16:01:45.730Z
@JimmyJames It may be *your* point *now*, but it wasn't *our* point originally, if you care to scroll up. We were debating whether or not hoarding bitcoin removes electricity from the supply in the same sense that hoarding gold removes gold from the supply. It does not, because these two commodities are fundamentally different to each other and an equivalent comparison cannot be made. Now it may or may not be the case that a government hoarding bitcoin causes bitcoin to collapse, but that was not what I was originally challenging you on.
JBentley
CC BY-SA 4.0
2021-02-17T16:03:03.390Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/119855/discussion-between-jbentley-and-jimmyjames).
JBentley
CC BY-SA 4.0
2021-02-17T20:18:59.160Z
@JimmyJames "If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from?"   No matter how deflationary, if bitcoin were the only currency, then people would spend them simply because they need to pay for food and bills.  Just spending on food would probably generate billions of transactions a day.  Also  Each coin is divisible into 100 million tradeable units.  Even if 90% of the supply is hoarded there are still 210 trillion units to trade.
user4574
CC BY-SA 4.0
2021-02-17T20:25:39.387Z
@user4574 The argument I was responding to was that the resources wasted by bitcoin transaction processing wouldn't be a problem because there wouldn't be a lot of transactions.  You are trying to apply my response to that assertion to a completely opposite argument where all transactions occur using bitcoin.
JimmyJames
CC BY-SA 4.0
2021-02-15T13:04:20.687Z
2021-02-15T13:04:20.687Z
Dmitry Grigoryev
<p>Gold standard did not have any <em>real</em> problems, so Bitcoin would not have any <em>real</em> problems.</p>
<p>Issue/problem with Bitcoin is not that it is bad, issue/problem is that it is good.</p>
<p>Governments like power, and power to print money is a lot of power.</p>
<p>Quotes from Ray Dalio(2020):</p>
<blockquote>
<p>Rather than it being far-fetched that the government would invade the privacy and/or prevent the use of Bitcoin (and its competitors) it
seems to me that the more successful it is the more likely these
possibilities would be.</p>
</blockquote>
<blockquote>
<p>It is hard for me to imagine that they would allow Bitcoin (or gold)
to be an obviously better choice than the money and credit that they
are producing. I suspect that Bitcoin’s biggest risk is being
successful, because if it’s successful, the government will try to
kill it and they have a lot of power to succeed.</p>
</blockquote>
<p>and Alan Greenspan(1966):</p>
<blockquote>
<p>This  is  the  shabby  secret  of  the  welfare  statists'  tirades
against  gold.  Deficit  spending  is  simply  a  scheme  for  the
confiscation of wealth. Gold stands in the way of this insidious
process. It stands as a protector of property rights. If one grasps
this, one has no difficulty in understanding the statists' antagonism
toward the gold standard.</p>
</blockquote>

CC BY-SA 4.0
2021-02-16T22:27:00.393Z
That Greenspan quote is kind of ridiculous. "Welfare statists" make no secret that they want to redistribute wealth, so there is no reason for them to be "insidious" in opposing financial systems that prevent them from doing so. I'm also rather sceptical that that's the **only** disadvantage of a gold standard, even if it does also have some advantages.
IMSoP
CC BY-SA 4.0
2021-02-16T20:13:24.017Z
2021-02-16T20:13:24.017Z
NoSenseEtAl
<p>It would have all the same &quot;problems&quot; (in quotes because some of its perceived problems were probably beneficial) only moreso. One key problem with gold was that it enforced liquidity constraints when emergency demanded flexibility.  Bitcoin being a finite quantity is the exemplar of inelasticity and it will cause the same problem only moreso.  Beyond this, its distribution is radically skewed in a way which gold never was....gold was more egalitarian. In short, whatever BTC becomes it will not be a &quot;bitcoin standard&quot; in the way that the world was once constrained by a &quot;gold standard&quot;.</p>

CC BY-SA 4.0
2021-02-15T22:47:07.303Z
Yes, if this actually happened it would make the people who currently hold large amounts of bitcoin even more wealthy and powerful. There are currently whales that hold billions of dollars worth of bitcoin and that would go up by orders of magnitude if a large economy completely switched to using it as their currency
Kevin
CC BY-SA 4.0
2021-02-16T21:46:39.337Z
Couldn't the liquidity problems be solved in part by governments simply hoarding a lot of coins most of the time and then just releasing them when needed.  The coins being out of circulation makes them effectively non existent.  And then releasing them into circulation has the same effect as printing new money.  The major difference is that they can't print without limit like they can now.
user4574
CC BY-SA 4.0
2021-02-17T19:18:01.960Z
@KevinWells as opposed to being one who can get the fiat money early through state largess before its inflation affects are felt as this early money trickles through the economy. Boom/bust and malinvestments.
paulj
CC BY-SA 4.0
2021-02-17T20:26:58.477Z
@paulj Yes, wealth inequality and generational wealth can be problems with almost any economic system, but bitcoin is particularly susceptible because there are a small number of people who hold a huge amount of it because of their early adoption of it. Nakamoto is believed to hold around a million bitcoins, which is already worth tens of billions of dollars currently, if bitcoin became a currency standard its price could increase by orders of magnitude, which would make him potentially the richest person to ever live. He would then have unprecedented power of the global economy all by himself
Kevin
CC BY-SA 4.0
2021-02-20T01:10:41.910Z
@KevinWells but he will never be able to print billions of more bitcoin making my bitcoin worth ever less.
paulj
CC BY-SA 4.0
2021-02-23T21:34:08.277Z
Hi, welcome to Economics:Stack Exchange. Please consider improving the answer by adding references from reputable sources. As many other science stacks we encourage links to external sources. See our [help center](https://economics.stackexchange.com/help/how-to-answer).
1muflon1
CC BY-SA 4.0
2021-02-15T20:17:19.927Z
2021-02-15T20:17:19.927Z
raul67
<p>It would not just be plagued by the same problems it would create some new ones.</p>
<p>Following the <a href="https://www.econstor.eu/handle/10419/148121" rel="noreferrer">Weber (2016)</a> who actually written research exploring exactly the question that you are asking here:</p>
<blockquote>
<p>The scope of monetary policy would be more limited under the Bitcoin standard than
under the gold standard. The ability to issue fiduciary currency would give central banks
limited ability to act as lenders of last resort. However, virtually costless arbitrage of Bitcoin across countries would prevent central banks from implementing interest rate policies to affect their domestic economies.</p>
</blockquote>
<blockquote>
<p>An empirical examination of countries’ experience with the gold standard leads to the
following conjectures about how the Bitcoin standard might perform:</p>
</blockquote>
<blockquote>
<ol>
<li>In the long run, there would be moderate deflation that would increase over time until
reaching a rate of deflation equal to the negative of the rate of growth of world output
around 2026.</li>
<li>Price levels of the various countries would be highly, but not perfectly, correlated, much
as they were under the gold standard.</li>
<li>Exchange rates among the fiduciary currencies of various countries would be fixed at
par, because the cost of Bitcoin arbitrage is essentially zero.</li>
<li>There would still be financial crises, because they can occur under any fractional reserve
financial system.</li>
</ol>
</blockquote>
<blockquote>
<p>The paper concludes by speculating that even if the Bitcoin standard were to come into
existence, it would not last long, for two reasons: (1) The payments world is changing so
rapidly that there will be a technological innovation that provides a potential medium of
exchange with the same or greater benefits of Bitcoin or with lower costs. Such an innovation
could come either from the private sector or from the government. (2) There would be
pressure to return to a fiat money system so that a more activist monetary policy could be
pursued.</p>
</blockquote>
<p>In a nutshell, it would be pretty similar to gold standard but with some extra strings attached that would just additionally constrain monetary policy making it even slightly worse. As a consequence, if Bitcoin standard would ever become adopted it would likely perform even worse than Gold standard did (which is saying something), and would likely go the same way.  You can find more detail on the workings of such standard in the paper itself.</p>
<hr />
<p><strong>Response to Edit:</strong></p>
<p>The above still applies but let me also respond to the new infographic that was added to the question.</p>
<ol>
<li><em>Scarcity</em> - This is exactly why Bitcoin would perform worse, and it is connected to what was written above.</li>
<li><em>Durability</em> - Given that gold has very long half-life and under gold standard it was mostly stored in vaults not actually used (hence no wear &amp; tear) this never was issue with gold standard.</li>
<li><em>Portability</em> - Same as above, under gold standard people mostly moved claims to gold, actual gold moved from vault to vault only occasionally. Also note in both Bitcoin and Gold <strong>standard</strong> people would not pay with Bitcoins or Gold respectively, they pay with banknotes that are <em>backed</em> by either Bitcoin or Gold respectively (and which would be on fixed exchange with banknotes e.g. 1USD=0.1 Bitcoin for example).</li>
<li><em>Divisibility</em> - This is moot point. You can have 0.000001 troy ounce. In fact gold is for all practical purposes infinitely divisible (up to the scale of individual atoms of course).</li>
<li><em>Storage</em> - this was never significant issue with gold standard, in addition people still store investment gold in vaults its just not tied to money.</li>
<li><em>Counterfeit</em> - Again completely moot point. Under gold standard gold would mostly just sit in vaults. People would not pay with gold coins. Banknotes backed by either Bitcoin or gold would be equally difficult to counterfeit as regular fiat banknotes since that is what people would be using as money under Bitcoin standard.</li>
<li><em>Adoption</em> - Again not relevant, if we talk about Bitcoin <em>standard</em> adoption requires fixed exchange between a currency and Bitcoin - to my best knowledge no country did this to the date. Also, I never heard of use of market capitalization as measure of adoption when it comes to monetary system so the metric does not provide any argument either in favor of gold or Bitcoin.</li>
</ol>

CC BY-SA 4.0
2021-02-15T13:30:13.033Z
It all depends on what you mean by worse. If you think that being unable to set interest policies and or increase monetary supply via fiat would be beneficial - it would certainly be a benefit. To some, this ability represents a power that perhaps should not be confined to the hands of the few, perhaps especially not the hands that are already deep in the cookiejar. I am not necessarily such a believer myself - but I do sympathize with the argument.
Stian
CC BY-SA 4.0
2021-02-15T13:47:28.390Z
@StianYttervik by worse I mean that empirically 1. Gold standard (GS) produced macroeconomic instability. Even very small shocks to macroeconomy could be easily exacerbated by the GS. 2. GS was unworkable outside expansions and in every large crisis most gold standard countries had to suspend it. 3. Gold standard is equivalent of being in currency area (see Eichengreen and Tamin 2010) which can only work if either a) countries are in fiscal Union- that implies some global government. B) all factors are perfectly mobile - e.g absolutely unrestricted migration. 4. Under GS gov can still control
1muflon1
CC BY-SA 4.0
2021-02-15T13:51:03.127Z
How much one buck is worth in terms of gold in principle. So the power is still there. Rather issue is that the conversion rate cannot be changed so flexibly meaning that monetary policy is much harder to execute. In such case if a gov wants to conduct macro management it has to resort to fiscal policy much more than otherwise which often produces worse result as then the macroeconomic management is done mostly by lawyers instead of professional macroeconomists
1muflon1
CC BY-SA 4.0
2021-02-15T14:06:50.297Z
But you might argue that this is because gold is an actual thing, which has both uses and sources. It requires storage and transport. A fiat currency is mostly free from this (there is still proveny on the minted coins and bills). A cryptocurrency would also be free of being an actual material or having a physical representation. I don't disagree with you, but there are several ways to consider it. Maybe a government shouldn't have the power to implement a monetary policy. This has also seen its fair share of economic disasters...
Stian
CC BY-SA 4.0
2021-02-15T14:09:42.573Z
@StianYttervik no in the above I purposefully excluded the issues with gold standard being based on physical thing - that’s a whole another issue of wasting scarce resources but unconnected to what was mentioned before
1muflon1
CC BY-SA 4.0
2021-02-15T14:12:48.413Z
@StianYttervik regarding the power of government 1. Monetary policy empirically can be argued to be less disastrous than fiscal policy over the course of entire history on the net basis as it is done by experts in independent gov body rather than by economically illiterate politicians directly. 2. you can say government should not be involved in market at all and we should have laissez faire but a) you can have that without Bitcoin standard with any feduciary money. b) most people would likely not support such system given the demands for redistribution and macro management most people have
1muflon1
CC BY-SA 4.0
2021-02-17T14:21:33.497Z
@StianYttervik One of the primary reasons gold was chosen as a currency in the first place was that it *had* no practical uses other than jewellery.
Shadur-don't-feed-the-AI
CC BY-SA 4.0
2021-02-14T17:44:31.190Z
2021-02-18T11:33:27.927Z
2021-02-18T11:33:27.927Z
1muflon1
<p>I am reading this article <a href="https://winklevosscapital.com/the-case-for-500k-bitcoin/" rel="nofollow noreferrer">here</a> that explains why bitcoin is a better store of value than gold.</p>
<p>In sum, here are some of the reasons proposed:</p>
<p><a href="https://i.sstatic.net/DbXgi.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/DbXgi.png" alt="enter image description here" /></a></p>
<p><strong>If someday a &quot;bitcoin standard&quot; does come to fruition, would it still be susceptible to the problems that plagued the gold standard?</strong></p>

CC BY-SA 4.0
2021-02-14T15:07:01.537Z
There are two stages to this question. (1) Could any large country peg its currency to Bitcoin? (2) What happens if all countries pegged their currency to Bitcoin? The problem with (2) is it assumes that the answer to (1) is “yes”, when it is arguably “no.”
Brian Romanchuk
CC BY-SA 4.0
2021-02-15T09:55:09.627Z
I'm an economist and I recommend you read economists with PhDs from top places like MIT. Anything else is essentially a waste of time. The opening sentence of the "article" (technically, a blog post) you link to is incorrect. "Gold and oil have historically been reliable stores of value." Everything is wrong about this. Gold and oil have fluctuated wildly and have been very poor stores of value. Why don't you grab a textbook by Paul Krugman, Greg Mankiw, Olivier Blanchard, Joseph Stiglitz, Ben Bernanke, etc. and look up "store of value" in the index. Good luck, it will take time.
PatrickT
CC BY-SA 4.0
2021-02-15T13:08:01.840Z
Caveat here: your Title and your question are NOT ASKING THE SAME THING! A "bitcoin standard" implies, as 1muflon1's answer replies to, that bitcoin is merely the backing of the - conventional - local currency. Meaning that any citizen can trade their local currency for bitcoins.  HOWEVER, if you just go by your questions title and interpret it as "everyone just uses bitcoin for payment", then his answer absolutely does not apply. Because then there is no financial policy anymore, and no more exchanges
Hobbamok
CC BY-SA 4.0
2021-02-18T23:19:40.213Z
Did you notice how Bitcoin fared in the table you Posted?

Either way, why would any measure not be prone to the same problems that plagued the gold standard?

In any case, what real problem was there with the gold standard, other than countries being allowed to leave… rather like today's theorized Grexit from the Euro?
Robbie Goodwin
CC BY-SA 4.0
2021-05-17T18:05:27.210Z
@PatrickT : can you provide a precise reference where it is explained how and why gold has been a poor store of value? Graphs of gold price in constant dollar seem to show the opposite... (and I do not understand why)
J.Mayol
CC BY-SA 4.0
2021-05-17T21:04:20.293Z
The price of gold has fluctuated a lot by any standard, so its value in dollar terms has risen and fallen. If you're not sure how to interpret a graph, you should post is as a question (including the graph). Here's a short newspaper column by Paul Krugman, you can search for similar discussions by the other guys I mentioned. Best. https://www.nytimes.com/2013/04/12/opinion/krugman-lust-for-gold.html
PatrickT
CC BY-SA 4.0
2021-05-20T06:19:17.273Z
I perfectly know how to read a graph, but thank you. There are many such graphs, e.g., https://goldprice.org/inflation-adjusted-gold-price.html 
You can see that buying for the equivalent of 1000 usd  (of today) of gold yields 1000 usd of gold at any date after. So it seems that gold is at least a neutral investment. The article to which you refer adds nothing to it.
J.Mayol
<cryptocurrency><bitcoin><gold-standard>
If Bitcoin becomes a globally accepted store of value, would it be liable to the same problems that mired the gold standard?
nz_21
# If Bitcoin becomes a globally accepted store of value, would it be liable to the same problems that mired the gold standard?

(Asked by: username_0 on 2021-02-14)

I am reading this article [here](https://winklevosscapital.com/the-case-for-500k-bitcoin/) that explains why bitcoin is a better store of value than gold.

In sum, here are some of the reasons proposed:

[![enter image description here](https://i.sstatic.net/DbXgi.png)](https://i.sstatic.net/DbXgi.png)

**If someday a "bitcoin standard" does come to fruition, would it still be susceptible to the problems that plagued the gold standard?**

**Tags:** cryptocurrency, bitcoin, gold-standard
> **Comments:**
> **username_1**: There are two stages to this question. (1) Could any large country peg its currency to Bitcoin? (2) What happens if all countries pegged their currency to Bitcoin? The problem with (2) is it assumes that the answer to (1) is “yes”, when it is arguably “no.”  
> **username_2**: I'm an economist and I recommend you read economists with PhDs from top places like MIT. Anything else is essentially a waste of time. The opening sentence of the "article" (technically, a blog post) you link to is incorrect. "Gold and oil have historically been reliable stores of value." Everything is wrong about this. Gold and oil have fluctuated wildly and have been very poor stores of value. Why don't you grab a textbook by Paul Krugman, Greg Mankiw, Olivier Blanchard, Joseph Stiglitz, Ben Bernanke, etc. and look up "store of value" in the index. Good luck, it will take time.  
> **username_3**: Caveat here: your Title and your question are NOT ASKING THE SAME THING! A "bitcoin standard" implies, as 1muflon1's answer replies to, that bitcoin is merely the backing of the - conventional - local currency. Meaning that any citizen can trade their local currency for bitcoins.  HOWEVER, if you just go by your questions title and interpret it as "everyone just uses bitcoin for payment", then his answer absolutely does not apply. Because then there is no financial policy anymore, and no more exchanges  
> **username_4**: Did you notice how Bitcoin fared in the table you Posted?  Either way, why would any measure not be prone to the same problems that plagued the gold standard?  In any case, what real problem was there with the gold standard, other than countries being allowed to leave… rather like today's theorized Grexit from the Euro?  
> **username_5**: @PatrickT : can you provide a precise reference where it is explained how and why gold has been a poor store of value? Graphs of gold price in constant dollar seem to show the opposite... (and I do not understand why)  
> **username_2**: The price of gold has fluctuated a lot by any standard, so its value in dollar terms has risen and fallen. If you're not sure how to interpret a graph, you should post is as a question (including the graph). Here's a short newspaper column by Paul Krugman, you can search for similar discussions by the other guys I mentioned. Best. https://www.nytimes.com/2013/04/12/opinion/krugman-lust-for-gold.html  
> **username_5**: I perfectly know how to read a graph, but thank you. There are many such graphs, e.g., https://goldprice.org/inflation-adjusted-gold-price.html  You can see that buying for the equivalent of 1000 usd  (of today) of gold yields 1000 usd of gold at any date after. So it seems that gold is at least a neutral investment. The article to which you refer adds nothing to it.  

---

## 5 answers

### Answer by username_22 on 2021-02-14. Score: 28 | Accepted answer

It would not just be plagued by the same problems it would create some new ones.

Following the [Weber (2016)](https://www.econstor.eu/handle/10419/148121) who actually written research exploring exactly the question that you are asking here:

> The scope of monetary policy would be more limited under the Bitcoin standard than
> under the gold standard. The ability to issue fiduciary currency would give central banks
> limited ability to act as lenders of last resort. However, virtually costless arbitrage of Bitcoin across countries would prevent central banks from implementing interest rate policies to affect their domestic economies.

> An empirical examination of countries’ experience with the gold standard leads to the
> following conjectures about how the Bitcoin standard might perform:

> 1. In the long run, there would be moderate deflation that would increase over time until
>    reaching a rate of deflation equal to the negative of the rate of growth of world output
>    around 2026.
> 2. Price levels of the various countries would be highly, but not perfectly, correlated, much
>    as they were under the gold standard.
> 3. Exchange rates among the fiduciary currencies of various countries would be fixed at
>    par, because the cost of Bitcoin arbitrage is essentially zero.
> 4. There would still be financial crises, because they can occur under any fractional reserve
>    financial system.

> The paper concludes by speculating that even if the Bitcoin standard were to come into
> existence, it would not last long, for two reasons: (1) The payments world is changing so
> rapidly that there will be a technological innovation that provides a potential medium of
> exchange with the same or greater benefits of Bitcoin or with lower costs. Such an innovation
> could come either from the private sector or from the government. (2) There would be
> pressure to return to a fiat money system so that a more activist monetary policy could be
> pursued.

In a nutshell, it would be pretty similar to gold standard but with some extra strings attached that would just additionally constrain monetary policy making it even slightly worse. As a consequence, if Bitcoin standard would ever become adopted it would likely perform even worse than Gold standard did (which is saying something), and would likely go the same way. You can find more detail on the workings of such standard in the paper itself.

---

**Response to Edit:**

The above still applies but let me also respond to the new infographic that was added to the question.

1. *Scarcity* - This is exactly why Bitcoin would perform worse, and it is connected to what was written above.
2. *Durability* - Given that gold has very long half-life and under gold standard it was mostly stored in vaults not actually used (hence no wear & tear) this never was issue with gold standard.
3. *Portability* - Same as above, under gold standard people mostly moved claims to gold, actual gold moved from vault to vault only occasionally. Also note in both Bitcoin and Gold **standard** people would not pay with Bitcoins or Gold respectively, they pay with banknotes that are *backed* by either Bitcoin or Gold respectively (and which would be on fixed exchange with banknotes e.g. 1USD=0.1 Bitcoin for example).
4. *Divisibility* - This is moot point. You can have 0.000001 troy ounce. In fact gold is for all practical purposes infinitely divisible (up to the scale of individual atoms of course).
5. *Storage* - this was never significant issue with gold standard, in addition people still store investment gold in vaults its just not tied to money.
6. *Counterfeit* - Again completely moot point. Under gold standard gold would mostly just sit in vaults. People would not pay with gold coins. Banknotes backed by either Bitcoin or gold would be equally difficult to counterfeit as regular fiat banknotes since that is what people would be using as money under Bitcoin standard.
7. *Adoption* - Again not relevant, if we talk about Bitcoin *standard* adoption requires fixed exchange between a currency and Bitcoin - to my best knowledge no country did this to the date. Also, I never heard of use of market capitalization as measure of adoption when it comes to monetary system so the metric does not provide any argument either in favor of gold or Bitcoin.

> **Comments:**
> **username_23**: It all depends on what you mean by worse. If you think that being unable to set interest policies and or increase monetary supply via fiat would be beneficial - it would certainly be a benefit. To some, this ability represents a power that perhaps should not be confined to the hands of the few, perhaps especially not the hands that are already deep in the cookiejar. I am not necessarily such a believer myself - but I do sympathize with the argument.  
> **username_22**: @StianYttervik by worse I mean that empirically 1. Gold standard (GS) produced macroeconomic instability. Even very small shocks to macroeconomy could be easily exacerbated by the GS. 2. GS was unworkable outside expansions and in every large crisis most gold standard countries had to suspend it. 3. Gold standard is equivalent of being in currency area (see Eichengreen and Tamin 2010) which can only work if either a) countries are in fiscal Union- that implies some global government. B) all factors are perfectly mobile - e.g absolutely unrestricted migration. 4. Under GS gov can still control  
> **username_22**: How much one buck is worth in terms of gold in principle. So the power is still there. Rather issue is that the conversion rate cannot be changed so flexibly meaning that monetary policy is much harder to execute. In such case if a gov wants to conduct macro management it has to resort to fiscal policy much more than otherwise which often produces worse result as then the macroeconomic management is done mostly by lawyers instead of professional macroeconomists  
> **username_23**: But you might argue that this is because gold is an actual thing, which has both uses and sources. It requires storage and transport. A fiat currency is mostly free from this (there is still proveny on the minted coins and bills). A cryptocurrency would also be free of being an actual material or having a physical representation. I don't disagree with you, but there are several ways to consider it. Maybe a government shouldn't have the power to implement a monetary policy. This has also seen its fair share of economic disasters...  
> **username_22**: @StianYttervik no in the above I purposefully excluded the issues with gold standard being based on physical thing - that’s a whole another issue of wasting scarce resources but unconnected to what was mentioned before  
> **username_22**: @StianYttervik regarding the power of government 1. Monetary policy empirically can be argued to be less disastrous than fiscal policy over the course of entire history on the net basis as it is done by experts in independent gov body rather than by economically illiterate politicians directly. 2. you can say government should not be involved in market at all and we should have laissez faire but a) you can have that without Bitcoin standard with any feduciary money. b) most people would likely not support such system given the demands for redistribution and macro management most people have  
> **username_18**: @StianYttervik One of the primary reasons gold was chosen as a currency in the first place was that it *had* no practical uses other than jewellery.  

---

### Answer by username_1 on 2021-02-14. Score: 9

> If someday this "bitcoin standard" does come to fruition, would it be susceptible to the problems that plagued the gold standard?

A bitcoin standard implies that all major countries have pegged their currencies to Bitcoin.

It is extremely unclear how a country could peg its currency to Bitcoin, nor is there any incentive for a country to do so.

If we can wave away this complication — which is difficult to justify — the resulting system would face the same issues that most historical versions of the Gold Standard face. The issue is that trade deficit countries are forced to tighten fiscal/monetary policy to stem losses of the asset backing their currency, while surplus countries were not obligated to adjust policy.

One could argue that a 100% cover ratio would solve that problem, but that then implies that the entire worldwide monetary base is Bitcoin. That makes the adoption problem even more difficult.

> **Comments:**
> **username_6**: "It is extremely unclear how a country could peg its currency to Bitcoin" - ??? It would be no different than pegging to gold, surely? Have a reserve of Bitcoin and interchange between your currency and Bitcoin whenever anyone asks.  
> **username_7**: @user253751 : at least gold was a well-established and relatively stable currency. Bitcoin, on the other hand, looks more like a speculative bubble. Why would any countries peg their currencies to a speculative bubble?  
> **username_8**: @vsz "Why" is often harder to answer than "How".  
> **username_1**: @user253751 How does the US buy enough Bitcoin to back its currency 100%? Everybody see that coming, and refuses to sell at a reasonable price. Countries were able to do things like seize gold, and get gold via having trade surpluses with countries with gold. No countries have Bitcoin reserves to allow the trade channel to work.  
> **username_9**: @BrianRomanchuk Countries could always invest in a fleet of supercomputers and mine the required bitcoin themselves. Of course this is probably even more impractical than seizing the bitcoin itself.  
> **username_1**: Most of the coins are already mined, and the server capacity won’t just magically appear.  
> **username_10**: Some countries are already starting to ban the use of Bitcoin, so if anything the trend is to do the opposite.  
> **username_11**: @BrianRomanchuk And if that scenario played out as you say with the price of bitcoin skyrocketing before the government could buy enough of it, that essentially impossible to make the switch to a "bitcoin standard". When they inevitably abandoned the plan the price of bitcoin would crash back down. It would become orders of magnitude more of a speculative bubble than it already is, which is saying something. Each time another large economy decided to attempt to join the bitcoin standard the price would again wildly fluctuate, destabilizing any economy already pegged to it  

---

### Answer by username_12 on 2021-02-15. Score: 7

The only real advantage of "bitcoin standard" over gold standard is that bitcoin standard wouldn't drive gold prices up, thus depriving of it industries which need gold as a raw material.

Pretty much every other aspect of a monetary system based on a fixed quantity of monetary units remains the same, regardless of the nature of this monetary unit. For a start, there will be a problem of equal distribution (countries which currently don't have any bitcoins and accept them as a monetary standard will be just like those hedge funds who sold GameStop shares short, and now need to buy them no matter the price). And then there will be an ever-lasting problem of a fixed monetary supply which doesn't match the economic growth, and no way to stabilize the economy using monetary policies.

> **Comments:**
> **username_3**: And that's because a "bitcoin standard" is a completely braindead idea. Either you just use bitcoin (or any other, more suitable crypto) INSTEAD of a local currency, or you don't  
> **username_13**: Since gold is a far less useful commodity than electrical power, I'm not sure that we can really call that an advantage, that aside, I think this hits the mark.  
> **username_13**: The problems with deflation are often underappreciated.  Every person who accumulates wealth in an inflationary system is driven to invest.  In a deflationary system, if I expect my money to grow in value over time, why risk investing it or loaning it?  Deflation is economic suicide.  
> **username_12**: @JimmyJames Thanks. I actually didn't think about it, but yeah, if bitcoin shortage would become a real economic problem, so will be electricity shortage.  
> **username_14**: "If bitcoin shortgage would become a real economic problem, so will electricity shortgage" - @JimmyJames 's analogy doesn't work here. A government hoarding gold removes gold from the supply. A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever. You cannot convert the bitcoin back to electricity. Additionally, there is a fixed supply of bitcoins and once they are all mined, electricity is only used to transfer bitcoins. Merely holding coins doesn't affect the market for electricity.  
> **username_13**: @JBentley "A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever." These two sentences don't seem to go together.  I agree with the latter but not the former.  If a power plant produces N kWh per day and you use X kWh to mine bitcoins, the supply of energy from the power plant is N-X kWh per day.  And whatever resources were used to create that N kWh have been consumed.  And to be clear, electricity is a raw material in the production of many more things than gold is.  
> **username_11**: This isn't really an advantage because all you're doing is inflating the price of one resource rather than another. In this case it would drive the price of graphics cards and ASICS even higher than they already are, and it would take an immense amount of electricity to power the bitcoin mining industry to keep everything running.  
> **username_14**: @JimmyJames Yes, but your assumption that bitcoins will be mined is incorrect. There will only ever be 21 million bitcoins in existence. 18.5 million of those have already been mined. If governments hoard bitcoins they will do so (mainly, or entirely) by purchasing them, not mining. With the lightning network, low-priority transactions, and cryptocurrency exchanges, the electricity costs of transactions can be kept arbitrarily low  
> **username_14**: @KevinWells See my comment above. As the supply of unmined coins reduces, the future of bitcoin processing will continue to shift away from mining and towards processing transactions. Thus the demand for graphics cards and ASICS will be driven by the demand for transactions (quantity traded in a given time interval). Governments hoarding bitcoins will certainly produce an initial burst of demand for transactions (but see above for mitigating via the lightning network, etc.), but there will not be a continued effect in the same way that the permenant removal of gold from the market causes.  
> **username_15**: @JimmyJames "The problems with deflation are often underappreciated. Every person who accumulates wealth in an inflationary system is driven to invest." Really? Then why do so many, especially rich folks, store their money in overseas bank accounts, to prevent anything from touching it? Too much money is left stagnant in the current economic system. For me, personally, the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides. And my interest rates aren't even negative, just stupidly low.  
> **username_6**: @Hobbamok Bitcoin standard is not useless. Consider the immense transaction costs of Bitcoin (just like gold!) compared to the low transaction costs of US Dollars.  
> **username_14**: @TomLint I thought it was pretty obvious that rich people who store their money in overseas bank accounts are most likely doing so for tax avoidance (or if they are also criminals, evasion). Also, JimmyJames said "why risk investing it **or loaning it**" (emphasis added). When you deposit money in your bank account you are doing exactly that - loaning it.  
> **username_3**: @user253751 yes, that is a reason. But that itself is solved better by a million things that are not the bitcoin standard, such as Layer 2 Solutions or just using a Crypto that isnt technically garbage to begin with.  
> **username_16**: @TomLint "the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides" - precisely: the presence of inflation has encouraged you to keep your money active in the economy, rather than stuffing it in your mattress. Deflation presents the opposite incentive - you can stuff money in your mattress and wait for its value to increase, _and so can everyone else_.  
> **username_13**: @JBentley In order for the Bitcoin system to work, you must avoid anyone having enough  compute power to create arbitrary transactions.  There's no way to make the costs "arbitrarily low" in such a system.  It requires a constant input of resources or its defunct.  
> **username_14**: @JimmyJames *Transactions* require that, not storage. Note that this will be the case independently of whether or not any particular entity decides to acquire coins - doing so does not add to the need to keep the system decentralised, because Bitcoin is proof-of-work, not proof-of-stake. Even as far as transactions are concerned, you're looking at just one aspect but you're disregarding the others (layer 2 solutions, exchanges, etc.). E.g. you can in theory acquire all your needed coins piecemeal on an exchange and then transfer them out in a single transaction.  
> **username_13**: @JBentley I don't think you can have it both ways.  If there aren't constant transactions happening, how do you expect a large network of compute resources to exist that are ready to process them?  What's in it for the transaction processors?  
> **username_17**: @JimmyJames Wouldn't the size of the transaction processing infrastructure simply size itself depending on what's profitable, just like every other industry?  If there are less transactions then the excess computing power is shut down or sold off.  If there are more then people invest and buy more processors.  I don't think we could expect all transactions to disappear, so there will always be some nodes who can process them.  The nodes are allowed to charge a transaction fee, they can set the fee to whatever they need to stay in business.  
> **username_13**: @user4574 Absolutely but if there aren't a lot of nodes in the network, it becomes trivial to spin up enough to take control.  The fundamental aspect that makes proof-of-work viable is that the work is hard to do.  If it becomes easy to process a transaction, the  system is no longer reliable.  
> **username_14**: @JimmyJames Not sure what you mean by having it both ways. My point isn't that you don't need constant transactions, my point is that if a large entity decides to buy and hoard a bunch of coins, this doesn't make any difference to the amount of processing that needs to be done to maintain the system as a whole, *apart from* at the exact moment that entity requires transaction(s) to acquire its coins. Whether the entity gets involved or not, the same processing is needed to maintain a flow of transactions.  
> **username_14**: @JimmyJames Thus, no burden is placed on the market for electricity by an entity which passively holds onto coins, other than an intiial demand for electricity, and that initial demand can be kept arbitrarily low through the use of intermediaries.  
> **username_15**: @IMSoP That's not what I meant, and the current interest rates are only as low as they are because of the never-ending stimulus package ran by the ECB. Prior to the 2008 financial crisis I never had any incentive to invest, because the interest rate on my savings account was close to or higher than the inflation. It is also not inflation that is causing me to invest, but, rather, the fee to host my bank account being higher than the interest I get on my savings. Under normal circumstances, the incentive to invest is non-existent.  
> **username_18**: @Jimmyjames If your money constantly increases in value you have no motivation to spend any today if it'll be worth twice as much tomorrow.  
> **username_16**: @TomLint "Investing" is probably the wrong focus, to be honest; a better distinction is between _spending_ and _saving_: interest rates are currently low at least in part because the Central Banks want you to _spend_ your money, so that it's being put to use in the economy. When they want you to _save_ your money, e.g. if inflation is too high, they'll raise central rates, which raises bank rates, including savings accounts. Neither of these are more "normal circumstances" than the other.  
> **username_13**: @JBentley If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from?  
> **username_14**: @JimmyJames "Everyone else" hoarding is not a realistic scenario. Money still needs to be spent even in a deflationary scenario, and there will be a demand for bitcoin by those wanting to convert other assets which are not increasing in value at the same rate. Such demand will push the price up to an equilbrium at which some people holding coins will sell them, as in any other economic scenario. In any case, this is beside the point. The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse.  
> **username_14**: @JimmyJames The main point is that gold and bitcoin are not comparable in terms of removing useful commodities from the market. Gold is finite in supply, electricity in theory at least can be generated from renewables.  Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back. Gold purchased removes gold from the market at a 1:1 ratio, a bitcoin transferred has a variable electricity cost which can be kept low. They are fundamentally different items  
> **username_13**: @JBentley " The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse." No this is the point entirely.  The bitcoin system requires the use of significant resources or if will collapse.  There's no third option.  
> **username_13**: @JBentley "Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back." I'm not sure why you think this is a good point.  Part of the reason gold has it's place as a medium of exchange is that it's not really very useful.  It's not 'consumed' in significant quantities by industry.  This made it superior to consumables like salt, for example.  
> **username_14**: @JimmyJames It may be *your* point *now*, but it wasn't *our* point originally, if you care to scroll up. We were debating whether or not hoarding bitcoin removes electricity from the supply in the same sense that hoarding gold removes gold from the supply. It does not, because these two commodities are fundamentally different to each other and an equivalent comparison cannot be made. Now it may or may not be the case that a government hoarding bitcoin causes bitcoin to collapse, but that was not what I was originally challenging you on.  
> **username_14**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/119855/discussion-between-jbentley-and-jimmyjames).  
> **username_17**: @JimmyJames "If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from?"   No matter how deflationary, if bitcoin were the only currency, then people would spend them simply because they need to pay for food and bills.  Just spending on food would probably generate billions of transactions a day.  Also  Each coin is divisible into 100 million tradeable units.  Even if 90% of the supply is hoarded there are still 210 trillion units to trade.  
> **username_13**: @user4574 The argument I was responding to was that the resources wasted by bitcoin transaction processing wouldn't be a problem because there wouldn't be a lot of transactions.  You are trying to apply my response to that assertion to a completely opposite argument where all transactions occur using bitcoin.  

---

### Answer by username_19 on 2021-02-16. Score: 1

Gold standard did not have any *real* problems, so Bitcoin would not have any *real* problems.

Issue/problem with Bitcoin is not that it is bad, issue/problem is that it is good.

Governments like power, and power to print money is a lot of power.

Quotes from Ray Dalio(2020):

> Rather than it being far-fetched that the government would invade the privacy and/or prevent the use of Bitcoin (and its competitors) it
> seems to me that the more successful it is the more likely these
> possibilities would be.

> It is hard for me to imagine that they would allow Bitcoin (or gold)
> to be an obviously better choice than the money and credit that they
> are producing. I suspect that Bitcoin’s biggest risk is being
> successful, because if it’s successful, the government will try to
> kill it and they have a lot of power to succeed.

and Alan Greenspan(1966):

> This is the shabby secret of the welfare statists' tirades
> against gold. Deficit spending is simply a scheme for the
> confiscation of wealth. Gold stands in the way of this insidious
> process. It stands as a protector of property rights. If one grasps
> this, one has no difficulty in understanding the statists' antagonism
> toward the gold standard.

> **Comments:**
> **username_16**: That Greenspan quote is kind of ridiculous. "Welfare statists" make no secret that they want to redistribute wealth, so there is no reason for them to be "insidious" in opposing financial systems that prevent them from doing so. I'm also rather sceptical that that's the **only** disadvantage of a gold standard, even if it does also have some advantages.  

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### Answer by username_20 on 2021-02-15. Score: 0

It would have all the same "problems" (in quotes because some of its perceived problems were probably beneficial) only moreso. One key problem with gold was that it enforced liquidity constraints when emergency demanded flexibility. Bitcoin being a finite quantity is the exemplar of inelasticity and it will cause the same problem only moreso. Beyond this, its distribution is radically skewed in a way which gold never was....gold was more egalitarian. In short, whatever BTC becomes it will not be a "bitcoin standard" in the way that the world was once constrained by a "gold standard".

> **Comments:**
> **username_11**: Yes, if this actually happened it would make the people who currently hold large amounts of bitcoin even more wealthy and powerful. There are currently whales that hold billions of dollars worth of bitcoin and that would go up by orders of magnitude if a large economy completely switched to using it as their currency  
> **username_17**: Couldn't the liquidity problems be solved in part by governments simply hoarding a lot of coins most of the time and then just releasing them when needed.  The coins being out of circulation makes them effectively non existent.  And then releasing them into circulation has the same effect as printing new money.  The major difference is that they can't print without limit like they can now.  
> **username_21**: @KevinWells as opposed to being one who can get the fiat money early through state largess before its inflation affects are felt as this early money trickles through the economy. Boom/bust and malinvestments.  
> **username_11**: @paulj Yes, wealth inequality and generational wealth can be problems with almost any economic system, but bitcoin is particularly susceptible because there are a small number of people who hold a huge amount of it because of their early adoption of it. Nakamoto is believed to hold around a million bitcoins, which is already worth tens of billions of dollars currently, if bitcoin became a currency standard its price could increase by orders of magnitude, which would make him potentially the richest person to ever live. He would then have unprecedented power of the global economy all by himself  
> **username_21**: @KevinWells but he will never be able to print billions of more bitcoin making my bitcoin worth ever less.  
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