In an online bout on Twitter, Ethereum co-founder Vitalik Buterin and a Bitcoin developer Zack Voel exchanged their arguments for whether Bitcoin’s goal “was, is, and will be” digital gold.
According to Voell, Satoshi Nakamoto developed this technology with that original goal and for Bitcoin to be a precious commodity residing online. However, Buterin was quick to recite the first page of the original research paper published by the same Nakamoto, stating that when he was in the “bitcoin land”, he clearly remembered that the founders intended for Bitcoin to be peer-to-peer cash first and foremost, and maybe digital gold as a cherry topping.
This debate between the two sides has actually been going on for quite some time and is far beyond this small-time spat between Voell and Buterin. It has a lot to do with the underlying natures of P2P cash and digital gold.
“To be [cash] or not to be, that is the question”
11 years ago, when a mysterious entity called Satoshi Nakamoto came up with an idea to create decentralized money, Bitcoin and its parent ledger, blockchain was created. According to the research paper cited by Vitalik Buterin, Bitcoin was supposed to be a peer-to-peer, decentralized electronic cash that would enable people to make online payments directly to one another without the interference of a financial institution.
And just like money, Bitcoin should’ve had the qualities of the regular currency, most importantly: it should have been extremely liquid, all users being able to easily buy or sell goods/services via the digital distributed ledger.
Not everyone shares the same conviction towards P2P cash
Now, while the blockchain platform and Bitcoin, in particular, has evolved in quite a popular initiative, it has also had its fair share of critics. For example, back in June 2018, the Bank of Finland released a research paper called “The Great Illusion of Cryptocurrencies.”
Written by the Financial Stability and Statistics Department’s Adviser on Digitalization and Head of the Digital Central Bank process, Aleksi Grym, the publication argued that the concept of a digital, P2P currency inscribed in Bitcoin was a “fallacy” because it doesn’t have one important underlying nature: a cryptocurrency isn’t backed by the actual product or labor.
Actually, this kind of conviction towards government-issued products and services, while distrusting the private sector, is apparent in Finland in many other sectors as well.
Under this monopoly, they have to undergo burdensome central checks and comply with lots of different regulations. And even then, they won’t be able to conduct their activities independently: the three above-mentioned bodies will still monitor all their actions. Therefore, this goes to show that the Bank of Finland’s negative view of cryptos is actually the whole government’s negative conviction towards the private sector.
The argument against/for digital gold
As for the argument of Bitcoin always having been the digital gold, and the counter-argument for it, we need to take a look at the Bitcoin block-size debate that’s been going on for a while. But before that, the opponents’ arguments against Bitcoin being gold of digital ledger is also interesting to examine.
Gold, as the opposing party likes to outline, is a very uncomfortable asset for being used in everyday transactions. Even though its scarcity and high value is seldom debated, people still cannot cut gold in chunks or pieces to pay for utility bills, buy groceries, or get subscriptions for Netflix. In short, gold is not a liquid asset, whereas Bitcoin is definitely something that can be easily exchanged.
As for the argument FOR the digital gold, developers like Voell indicate that since the transaction fees for Bitcoin had risen quite substantially in a very short period of time, it’s quite realistic to deem it digital gold. The reason for this rise in transaction fees is associated with the refusal of developers to increase the block size in order to accommodate more on-chain transactions.
This, as a consequence, led to a very significant increase in fees. For example, from March 1st to March 20th, the transaction fee rose from $0.40 all the way to $1.76. And according to the BitInfoCharts, the average Bitcoin transaction costs anywhere from 600% to 646,000% more expensive than other altcoins like Ethereum and Dash.
This was actually an acceptable development for the supporters of BTC digital gold. In their opinion, having costly transactions means that Bitcoin’s network is highly secured, and for this advantage, they are willing to take additional costs as they usually transfer much larger amounts than regular users.
What’s interesting in this development is that even Buterin is starting to agree with this interpretation of Bitcoin. He clarifies that high transaction costs are the reality and for that reason, there is the actual possibility of Bitcoin becoming digital gold.
An asset constantly re-interpreted
Nakamoto’s creation has undergone quite a lot of heat and discussion over the past 11 years. There was a time when Bitcoin was so cheap that people spent tens of thousands of BTC just to buy two large pizzas. But there were also times when one BTC token cost as much as $20,000, definitely giving a heart attack to those who bought that legendary pizza.
Whether Bitcoin is just peer-to-peer cash or digital gold, one thing is pretty clear: blockchain has penetrated the financial markets and it’s not going anywhere in the foreseeable future.