Web3 – Salt, Cattle, Silver, and Gold
What makes Bitcoin valuable?
People ask: “what’s backing Bitcoin?”
There’s usually an unstated assumption that it has to be backed by something valuable. Something like gold.
Now you probably know this but just so we’re on the same page: the US dollar is the worlds primary reserve currency; It’s held in large quantities by other countries and big banks; And it hasn’t been backed by gold since the 1970’s.
That’s almost 50 years.
But we still think the US dollar is valuable…
Now to understand what makes Bitcoin valuable, it’s helpful to learn a few things about money.
Let’s time travel
Long ago humans bartered for things. We traded bread for shoes. Or a horse for a cow.
Things were simple(ish).
But you can see how it fell apart eventually when someone was unwilling to accept 1,400 loaves of bread for a cow. 😆
Just like that… bingo bango… money is created.
With money came a bunch of sweet perks:
A medium of exchange – it can be used to buy and sell anything with anyone.
A store of wealth – we can hold onto it and accumulate wealth. Or buy better things later. Or pass it on to our kin.
A unit of account – and it makes pricing things easier. A cow is no longer 1,400 loaves of bread or 44 pairs of shoes. It’s just $2,200 (yes – I Googled “how much does a cow cost?”).
One truth. One lie.
In ancient times salt was sorta valuable. Roads all over Europe were created for the salt trade. One road in particular, the Via Salaria, connected the Adriactic Sea directly to Rome.
It’s said that salt was used as money to pay Roman soldiers. Internet historians have taken this salt payment for work thing and the Latin root for salt, sal, and given us the word salary.
Payment. Sal. Salary. 🤷♂️
Probably not a true fact. Interesting nonetheless.
Many things though have been used as money by humans. Seashells, salt (probably), giant stones, cows, glass beads, silver, and gold.
That is a true fact.
So why don’t we still use seashells, salt, or cows as money?
History has shown that a good candidate for money needs to have a few qualities:
It’s gotta be salable. Easy to trade, portable, and divisible. You can’t buy half of a (live) cow. And moooving a cow across the world for payment sounds rough.
It also needs to be durable. Ideally it’s hard to break, won’t dissolve in water, or get turned into a steak.
And It’s gotta be scarce. if anyone could make it or dig it up easily, it wouldn’t be very rare or valuable for long.
Bitcoin gives us all the benefits of modern money – and then some.
It’s salable. You can send it to anyone anywhere on the globe without leaving the couch.
And it’s incredibly divisible. Each Bitcoin can be divided into 100,000,000 Satoshis (kinda like a dollar can be divided into 100 cents).
It’s also pretty dang durable. It lives on the blockchain and over 100,000 computers keep a backup copy of it.
But maybe most importantly, Bitcoin is scarce. Unlike the US dollar, that’s being printed like it’s going out of style, only 21M Bitcoins will ever exist. No more can be created.
Here’s your takeaway:
Think about Bitcoin like gold.
It’s fixed supply – only 21M coins – is what gives it value and a current market cap of over $678B.
Most government issued money (sometimes called fiat) is no longer backed by gold. This means governments can print as much as they’d like.
Maybe not great in the long run. 😅