Xapo CEO and founder Wences Casares explains why, after a 5,000 year reign, gold has been surpassed by bitcoin as the ideal ledger.
Wences Casares: Bitcoin is a new digital currency that is perhaps the best form of money that we have ever seen. It’s important because most of us don’t understand money very well and perhaps the concept that is hardest for us to understand about money is that money is and has always been a ledger. And people often ask: "What is money backed with?" And the truth is money’s not backed with anything. It has never been backed with anything. The euro is not backed with anything in particular and neither is any other currency in the world. And gold, for example for that matter is not backed with anything either.
Some people think that gold has value because we use it for jewelry but it’s actually the other way around. Gold is valuable because it’s very scarce and because it’s very scarce it has been the best ledger we’ve found in 5,000 years. In bitcoin we have something that is as good a ledger as gold, meaning it’s incredibly scarce. There will never be more than 21 million bitcoin. It’s even more scarce than gold.But in history we have had this tradeoff between things that have been very, very good store of value like gold for example and things that have been good for payment like the Portuguese escudo, the U.S. dollar, American Airline miles, or Facebook credits. Those things are better for payment but they’re not so good as a store of value historically. And the things that are good for a store of value like gold are not good for payments.
In bitcoin we have something for the first time that is incredibly superior than anything we have seen before as a store value and also as a form of payment.It’s hard to have a rigorous discussion about bitcoin without understanding money. And the best way to understand money is to understand the history of money. Anthropologists agree that there’s no tribe, much less a civilization, that ever based its commerce on barter. There’s no evidence. Barter never happened. And that’s counterintuitive to most of us because we are taught in school that we first barter and then we made money because barter was too complicated.
Well, barter never happened and that’s one of the key myths about money. So then you would ask the anthropologists, "So how did we do commerce before money if there was no barter? There was no commerce." No, there was plenty of commerce and the way that commerce would happen is that let’s say that someone in our tribe killed a big buffalo and I would go up to a person and say hey, "Can I have a little bit of meat?" And that person would say "No" or "Yes, Wences, here’s your meat." And then you would go up to a person and say "Hey, can I have a little bit of meat?" and that person said "Yes, here’s your meat."And basically we all have to keep track in our heads of what we owed other people or what our people owed us. And then someone would come to me and say "Hey Wences, can I have a little bit of firewood?" and I would say "Sure, here’s your firewood." And I have to remember that I owe that person a little bit, that this person owes me a little.
And we all went about our business with these ledgers in our minds of who owes us what and what do we owe to whom. Very subjective system often these debts didn’t clear or clear in ways that were not satisfactory to both parties. Until about 25,000 years ago someone very, very intelligent came up with a new technology that really took off. So a person came to me and said "Hey, can I have a little bit of firewood?" and I said "Sure, here’s your firewood." And this person said "This time we’re going to try something different. Here are some beads for you." And I said "I don’t want beads. I don’t care for beads. I don’t need beads." He said "It’s not about that. We are going to use beads as the objective ledger of our tribe. Instead of each of us having to remember what we are owed the beads are going to keep track for us. An objective ledger to keep track of debt."
It was such a successful technology that it took off and in a couple thousand years it became impossible to find a tribe or a civilization that didn’t have some form of objective ledger. In some cases it was wampum shells. In other places it was salt, in other places rocks or beads. But this form of keeping track of debts with an objective ledger took off. And anthropologists go as far as saying that if you describe a tribe’s environment in detail they can predict what’s going to emerge as an objective ledger as money because it’s always something that has six qualities.The most important of which is that it be scarce, and it makes sense because if it’s not scarce we can create, you know, if we were to use tree leaves for example, we could create debts owed to us out of thin air and that wouldn’t be good. That wouldn’t be a good ledger. But it also has to be durable. If it’s something that decays or corrodes it doesn’t store the information well. It has to be divisible. It has to be transportable, recognizable and fungible.
This system really worked until about 5,000 years ago when trade began to extend a lot geographically and we began to trade with other tribes. And different tribes were using different ledgers so they couldn’t trade with each other. And what happened then, about 5,000 years ago, is that gold emerged as the first universal ledger to keep track of debts.And it was gold because it was universally scarce. That was the most important consideration. But also it was very, very durable, fairly divisible, transportable, recognizable and fungible. And that’s why for 5,000 years gold has been the best store of value we have ever seen.
It’s incredible that today if you need to leave $5,000 for someone for your daughter – not your daughter or your granddaughter but some great, great, great, great, great, great, great granddaughter of yours 40 generations from now – 900 years from now, we don’t know how to do that. If you leave it in just dollars it’s not going to be worth very much. We know of no security that will last that long. The only thing that we know can carry value for that long is you need to buy $5,000 worth of gold, lock it in a vault and give the key to that person 900 years from now. It’s incredible that in the twenty-first century this is the best answer we have.
This is why bitcoin is so relevant because it’s the first time in 5,000 years that we have something that is incredibly superior to gold in each one of the six characteristics. It’s much more scarce than gold. There will never be more than 21 million bitcoins. It’s more divisible than gold. Each bitcoin is composed of a million pieces called Satoshis. It’s much more durable, divisible, transportable. You know I can have a Skype call from here in New York to someone in Jakarta and I can see them in real time and I can hear them and they can see me and they can hear me. It’s incredible the technological accomplishment of that. But if after hanging up I want to send them one cent to Jakarta even though I have the cent in my pocket and it will be trivial if they were here, we don’t know how to do that. It’s not possible in the twenty-first century to send a cent to Jakarta. One, because it will cost more than 50 cents to send it. Two because it will take a week to get there. And three because just there are no systems to do that. Well bitcoin fixes that and makes it real easy to send that cent to Jakarta or a million dollars to Jakarta.You can attach a bitcoin to an SMS message or an email and send it for free and in real time across the world. And it’s incredibly easy to verify the second you get a bitcoin you know that it’s a good bitcoin. So it has all of the qualities of a great ledger made in digital. And because of that it’s probably the best form of money we’ve ever seen.
Directed / Produced by Jonathan Fowler, Elizabeth Rodd, and Jonathan Fowler