Author's Note

As a practitioner who has worked in the Web3 industry for many years, I have witnessed and participated in the birth and evolution of countless new concepts, new narratives, and new ways of playing. From DeFi, NFT, DAO, to various public chains, side chains, and L2 solutions, the industry seems to always be chasing the latest, coolest, and most imaginative innovations.

But in this continuous wave of innovation, when I went back to read the Bitcoin white paper and thought about its design and economic nature, I gained many new insights. Bitcoin is undoubtedly the starting point of the entire industry and the most revolutionary invention. Its simplicity, restraint and algorithm-based trust mechanism have not yet been surpassed by later comers.

After experiencing so many new narratives, it may be more meaningful to reflect on Bitcoin itself and re-examine its unique position and future possibilities in the history of currency evolution than to blindly chase new trends. I also hope that this article can help you escape the noise, look back at the essence, and inspire new thinking.

introduction

Currency is one of the most profound and consensus-building inventions in the process of human civilization. From barter to metal currency, from the gold standard to sovereign credit currency, the evolution of currency has always been accompanied by changes in trust mechanisms, transaction efficiency and power structures. Today, the global monetary system is facing unprecedented challenges: currency over-issuance, trust crisis, sovereign debt deterioration and geo-economic shocks caused by the hegemony of the US dollar.

The birth of Bitcoin and its growing influence have forced us to rethink: What is the essence of currency? What form will the future "value anchor" take?

“The revolutionary nature of Bitcoin lies not only in its technology and algorithms, but also in the fact that it is the first ‘bottom-up’ monetary system in human history that is driven by users themselves, and is challenging the millennial paradigm of state-led currency issuance.”

This article will review the historical evolution of currency anchors, criticize the dilemma of the current gold reserve system, analyze the economic innovations and limitations of Bitcoin, explore the thought experiment of Bitcoin as a future value anchor, and look forward to the possible multiple evolution paths of the global monetary system.

I. Historical Evolution of Currency Anchors

1. Barter and the Birth of Commodity Money

Humanity’s earliest economic activities were mainly based on the “barter” model, where both parties to a transaction had to possess exactly what the other party needed. This “coincidence of dual needs” greatly restricted the development of production and circulation [1]. To solve this problem, commodities with universally accepted values (such as shells, salt, livestock, etc.) gradually became “commodity currencies,” laying the foundation for later precious metal currencies.

2. Gold Standard and Global Settlement System

In civilized society, gold and silver have become the most representative general equivalents due to their natural properties such as scarcity, easy division and difficulty in tampering. Ancient empires such as ancient Egypt, Persia, Greece and Rome all used metal currency as a symbol of national power and social wealth.

By the 19th century, the gold standard was established worldwide, with currencies of various countries linked to gold, achieving standardization of international trade and settlement. England formally established the gold standard in 1816, and other major economies gradually followed suit. The biggest advantage of this system is that the "anchor" of currency is clear and the trust cost between countries is low, but it also results in the money supply being limited by gold reserves and unable to support the expansion of industrialization and the globalized economy (such as the "gold shortage" and deflation crisis) [2].

3. The rise of credit currency and sovereign credit

In the first half of the 20th century, the two world wars completely impacted the gold standard system. In 1944, the Bretton Woods system was established, and the US dollar was linked to gold, and other major currencies were linked to the US dollar, forming the "dollar standard". In 1971, the Nixon administration unilaterally announced the decoupling of the US dollar from gold, and the global sovereign currency officially entered the credit currency era. Countries issue currencies based on their own credit and regulate the economy through debt expansion and monetary policy.

Credit money has brought great flexibility and room for economic growth, but it has also laid the hidden dangers of a crisis of trust, hyperinflation, and excessive money supply. Third World countries have repeatedly fallen into currency crises (such as Zimbabwe, Argentina, and Venezuela), and even emerging economies such as Greece and Egypt are struggling with debt crises and foreign exchange turmoil[2].

2. The Real Dilemma of the Gold Reserve System

1. Concentration and opacity of gold reserves

Although the gold standard has become history, gold is still an important reserve asset on the balance sheets of central banks. Currently, about one-third of the world's official gold reserves are stored in the vaults of the Federal Reserve Bank of New York. This arrangement originated from the trust of the international financial system in the US economic and military security after World War II, but it also brought significant concentration and opacity problems.

For example, Germany once announced that it would transport part of its gold reserves back to the United States. One of the reasons was the lack of trust in the U.S. treasury accounts and the long-term failure to conduct on-site inventory. It is difficult for the outside world to verify whether the treasury accounts are consistent with the actual gold reserves. In addition, the proliferation of derivatives such as "paper gold" has further weakened the correspondence between "book gold" and physical gold.

2. Non-M0 attributes of gold

In modern society, gold no longer has the attributes of daily circulating currency (M0). It is impossible for individuals and companies to directly use gold to settle daily transactions, and it is even difficult to directly hold and transfer physical gold. The main role of gold is more as a settlement tool between sovereign countries, bulk asset reserves and financial market hedging tools.

International gold settlement usually involves complex clearing processes, long time delays and high security costs. Moreover, the transparency of gold transactions between central banks is extremely low, and account checking relies on the trust endorsement of centralized institutions. This makes the role of gold as a global "value anchor" increasingly symbolic rather than real circulation value.

3. Bitcoin’s Economic Innovation and Practical Limitations

1. Bitcoin’s “algorithmic anchoring” and currency attributes

Since its birth in 2009, Bitcoin's constant total amount, decentralization, and transparent and verifiable characteristics have triggered a new round of thinking about "digital gold" around the world. Bitcoin's supply rules are written into the algorithm, and the total upper limit of 21 million coins cannot be changed by anyone. This "algorithm-anchored" scarcity is similar to the physical scarcity of gold, but it is more thorough and transparent in the global Internet era.

All Bitcoin transactions are recorded on the blockchain, and anyone in the world can publicly verify the ledger without relying on any centralized institution. This property theoretically greatly reduces the risk of "book value not matching reality" and greatly improves the efficiency and transparency of clearing and settlement [3].

2. Bitcoin’s “bottom-up” diffusion path

• There is a fundamental difference between Bitcoin and traditional currency: traditional currency is issued and promoted "top-down" by state power, while Bitcoin is adopted "bottom-up" by users spontaneously and gradually spread to enterprises, financial institutions and even sovereign states.
• Users come first, institutions come later: Bitcoin was first adopted spontaneously by a group of crypto technology enthusiasts and libertarians. As the network effect increases, prices rise, and application scenarios expand, more and more individuals, companies, and even financial institutions begin to hold Bitcoin assets.
• Passive adaptation by countries: Some countries have designated Bitcoin as legal tender, and some countries have approved Bitcoin-related financial products, allowing institutions and the public to participate in the Bitcoin market through compliant channels. Bitcoin's user base and market acceptance have driven sovereign countries to passively embrace this new form of currency.
• Global borderless expansion: Bitcoin's network effect breaks through sovereign boundaries. Whether in developed countries or emerging markets, a large number of users spontaneously adopt Bitcoin in daily life, asset reserves and cross-border transfers.

This historic shift shows that whether Bitcoin can become a global currency no longer depends entirely on the "approval" of countries or institutions, but rather on whether there are enough users and market consensus.

Implications for the future monetary landscape:

• The separation of power and currency is possible: currency is no longer necessarily dependent on state power, but can belong to the Internet, algorithms and global user consensus.
• State support becomes the "icing on the cake": whether Bitcoin becomes a global currency no longer depends entirely on the legislative support of state institutions, but only on having enough users and social recognition.
• New sovereign challenges: Sovereign states may have to adapt to or even passively accept the impact of "user-autonomous currency" in the future.

Criticism and Thinking:

Limitations and risks of user autonomy: Without sovereign endorsement, how to manage risks such as extreme volatility, governance challenges, and “black swan” events?

Can a “bottom-up” approach to global crises be dealt with? Is a monetary system lacking central coordination more vulnerable to systemic financial crises or large-scale technological attacks?

Redistribution of power: Is Bitcoin truly “decentralized”? Or will new oligopoly centers emerge?

3. Realistic limitations and criticism

Although Bitcoin is revolutionary in theory and technology, it still has many limitations in real-world applications:

• Large price fluctuations: Bitcoin prices are extremely susceptible to market sentiment, policy news and liquidity shocks, and short-term fluctuations far exceed those of sovereign currencies.
• Low transaction efficiency and high energy consumption: The Bitcoin blockchain can only process a limited number of transactions per second, the confirmation time is long, and the proof-of-work mechanism consumes a lot of energy.
• Sovereign resistance and regulatory risks: Some countries have adopted a negative or even suppressive attitude towards Bitcoin, leading to global market differentiation.
• Uneven distribution of wealth and technical barriers: Early Bitcoin users and a few large holders control a large amount of Bitcoin, and wealth is highly concentrated. In addition, ordinary users need certain technical barriers to participate, and are vulnerable to risks such as fraud and loss of private keys.

4. Similarities and Differences between Bitcoin and Gold: Thought Experiments as Future Value Anchors

1. A historical leap in transaction efficiency and transparency

In the era when gold is the anchor of value, international bulk gold transactions often require the use of airplanes, ships, armored vehicles, etc. for physical transfer, which not only takes days or even weeks, but also requires high transportation and insurance costs. For example, the German central bank once announced that it would transport its gold reserves from overseas back to its home country, and the entire plan took many years to complete.

More importantly, the global gold reserve system has serious accounting opacity and inventory problems. The ownership, storage location, and actual existence of gold reserves can only rely on unilateral statements from centralized institutions. Under this system, the cost of trust between countries is extremely high, and the robustness of the international financial system is restricted.

Bitcoin addresses these issues in a completely different way. The ownership and transfer of Bitcoin are recorded on the blockchain, and anyone in the world can verify it in real time and publicly. Whether it is an individual, a company or a country, as long as they have a private key, they can allocate funds at any time, without the need for physical transfer or third-party intermediaries, and it only takes tens of minutes for global accounts to arrive. This unprecedented transparency and verifiability gives Bitcoin an efficiency and trust foundation in bulk settlement and value anchoring that gold cannot achieve.

2. The “Role Hierarchy” Concept of Value Anchors

Although Bitcoin far exceeds gold in transparency and transfer efficiency, it still faces many limitations in daily payments and small-amount circulation - transaction speed, handling fees, price fluctuations and other issues, making it difficult to become real "cash" or M0.

However, referring to the M0/M1/M2 and other monetary stratification theories, we can imagine the following structure of the future monetary system:

• "Anchors" such as Bitcoin serve as value storage and bulk settlement tools at the M1+ level, similar to the status of gold in central bank assets, but are more transparent and easier to clear.
• Stablecoins based on Bitcoin, second-layer networks (such as the Lightning Network), sovereign digital currencies (CBDC), etc., undertake daily payment, micropayment and retail settlement functions. These "sub-currencies" are anchored to Bitcoin or issued under its guarantee, achieving the unity of circulation efficiency and value stability.
• Bitcoin has become the "general equivalent" and "unit of measurement" of social resources and is widely recognized by the global market. However, it is not used directly for daily consumption. Instead, it serves as the "ballast" of the economic system like gold.

This layered structure can not only utilize the scarcity and transparency of Bitcoin as a global "value anchor", but also use technological innovation to meet the convenience and low-cost needs of daily payments.

5. Possible Evolution of the Future Monetary System and Critical Thinking

1. Multi-level, multi-role currency structure

The future monetary system is likely to no longer be dominated by a single sovereign currency, but a system where "value anchor - payment medium - local currency" coexists in three layers, with cooperation and competition going hand in hand:

• Value Anchor: Bitcoin (or similar digital assets), as a decentralized global reserve asset, plays the role of "high-level currency" such as cross-border settlement, central bank reserves, and value hedging.
• Payment media: stablecoins, sovereign digital currencies, lightning networks, etc., anchored to Bitcoin or sovereign currencies to achieve daily circulation, payment and pricing.
• Local currency: Each country's local currency continues to assume the regulatory and management functions of the local economy and achieve taxation, social welfare and economic policy goals.

Under this multi-layered structure, the three major functions of currency (medium of exchange, measure of value, and store of value) will be more clearly divided among different currencies and levels, and the risk diversification and innovation capabilities of the global economy will also be enhanced accordingly.

2. New trust mechanisms and potential risks

But this new system is not without risks. Can algorithms and network consensus truly replace national sovereignty and the credit of central institutions? Will the decentralized nature of Bitcoin be eroded by computing power oligarchs, protocol governance loopholes, or technological advances? Global regulatory disagreements, policy conflicts, "black swan" events, etc. may become destabilizing factors for the future monetary system.

In addition, in order to safeguard their own interests, sovereign states may restrict the expansion of Bitcoin through strong regulation, taxation, technological blockades, etc. Whether Bitcoin can truly achieve global consensus and maintain its status as "digital gold" in the "bottom-up" path still needs time to test.

Conclusion and Open Questions

Looking back at the evolution of currency, from barter to gold standard and then to credit currency, each change of "anchor" is accompanied by a profound change in the trust mechanism and social organization. The emergence of Bitcoin, for the first time, shifted the "value anchor" from physical resources and sovereign credit to algorithms, networks and global user consensus. Its "bottom-up" diffusion model, transparent and verifiable ledger, and global network effect provide a new thought experiment for the future monetary system.

However, the road to the Bitcoin revolution is not an easy one. Issues such as price fluctuations, governance difficulties, regulatory risks, and technical barriers need to be addressed urgently. Whether Bitcoin can eventually become the "value anchor" or "general equivalent" of the global monetary system depends not only on technological innovation and user consensus, but also on the reshaping of the global economic, social, and political structures.

Open issues:

• If not Bitcoin, what will be the future value anchor?
• How will the ultimate trust basis of currency evolve?
• What kind of balance will the future global value system strike between state power, user autonomy, and algorithmic governance?

As we continue to chase the next trend in the new narrative and technology wave, perhaps the most worthy of attention are those seemingly "simple" but most penetrating innovations. Bitcoin, as a monetary experiment in the Internet age, deserves our continued in-depth thinking.

Appendix/Notes

1. [1] Carl Menger, The Origin of Money

2. [2] Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939, Oxford University Press, 1992.

3. [3] Satoshi Nakamoto, "Bitcoin: A Peer-to-Peer Electronic Cash System", https://bitcoin.org/bitcoin.pdf