The Evolution of Currency and the Bitcoin Revolution: Rethinking Value Anchoring

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

However, in this ongoing wave of innovation, when I revisit the Bitcoin white paper and contemplate its original design intentions and economic essence, I find myself gaining many new insights. Bitcoin is undoubtedly the starting point of the entire industry and the most fundamentally revolutionary invention. Its simplicity, restraint, and algorithmically anchored trust mechanism have yet to be surpassed by later entrants.

After experiencing so many new narratives, reflecting on Bitcoin itself and re-examining its unique position and future possibilities in the history of currency evolution may be more meaningful than blindly chasing new trends. This article aims to step out of the noise, look back at the essence, and inspire new thoughts.

Introduction

Currency is one of the most profound and consensus-driven inventions in the progress of human civilization. From barter to metallic currency, from the gold standard to sovereign credit currency, the evolution of currency has always accompanied changes in trust mechanisms, transaction efficiency, and power structures. Today, the global monetary system is facing unprecedented challenges: excessive currency issuance, a trust crisis, worsening sovereign debt, and geopolitical economic shocks triggered by the dominance of the dollar.

The birth of Bitcoin and its growing influence compel us to rethink: what is the essence of currency? In what form will the future "value anchor" exist?

The revolutionary aspect of Bitcoin lies not only in its technology and algorithms but also in the fact that it is the first "bottom-up" monetary system driven voluntarily by users in human history, challenging the millennium paradigm of state-dominated currency issuance.

This article will review the historical evolution of currency anchor items, critique the dilemmas 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 diverse evolutionary paths of the global monetary system.

1. The Historical Evolution of Currency Anchors

1. The Birth of Barter and Commodity Money

The earliest economic activities of humanity mainly relied on the "barter" model, where both parties involved in the transaction had to possess exactly what the other needed. This "coincidence of double demand" greatly restricted the development of production and circulation. To solve this problem, commodities with universally accepted value (such as shells, salt, livestock, etc.) gradually became "commodity money," laying the foundation for later precious metal currencies.

2. Gold Standard and Global Settlement System

Entering a civilized society, gold and silver, due to their natural properties of scarcity, ease of division, and difficulty in alteration, became the most representative general equivalents. Ancient empires all used metal currency as a symbol of national power and social wealth.

By the 19th century, the gold standard was established globally, linking national currencies to gold and standardizing 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 was the clarity of the currency's "anchor" and the low trust costs between countries, but it also led to the limitation of money supply by gold reserves, making it difficult to support the expansion of industrialization and globalization.

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, linking the US dollar to gold, while 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, officially ushering global sovereign currencies into the era of fiat money, where countries issued currency based on their own credit and regulated the economy through debt expansion and monetary policy.

Fiat currency has brought great flexibility and room for economic growth, but it has also buried the hidden dangers of trust crises, hyperinflation, and excessive currency issuance. Third world countries repeatedly fall into currency crises, and even some emerging economies are struggling amid debt crises and foreign exchange turmoil.

2. The Real Dilemma of the Gold Reserve System

1. Concentration and Opacity of Gold Reserves

Although the gold standard has become history, gold remains an important reserve asset on the balance sheets of central banks around the world. Currently, about one-third of the official gold reserves globally are stored in the vaults of the Federal Reserve Bank of New York. This arrangement stems from the trust in the U.S. economy and military security in the post-World War II international financial system, but it has also led to significant concentration and opacity issues.

For example, Germany announced that it would repatriate part of its gold reserves from the United States, one reason being distrust in the American treasury's accounts and the long-standing failure to conduct on-site audits. It is difficult for outsiders to verify whether the treasury accounts match the actual gold reserves. In addition, the proliferation of derivatives like "paper gold" has further weakened the correspondence between "account gold" and physical gold.

2. The non-M0 attribute of gold

In modern society, gold no longer possesses the attributes of a currency in daily circulation (M0). Individuals and businesses cannot 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 nations, a reserve for bulk assets, and a hedging instrument in financial markets.

International gold settlements usually involve complex clearing processes, long time delays, and high security costs. Furthermore, the transparency of inter-central bank gold transactions is extremely low, and account audits rely on the trust endorsement of centralized institutions. This makes gold's role as a global "value anchor" increasingly symbolic rather than a reflection of real circulation value.

3. The Economic Innovations and Real Limitations of Bitcoin

1. The "algorithmic anchoring" of Bitcoin and its currency attributes

Since its inception in 2009, Bitcoin's characteristics of a fixed total supply, decentralization, and transparency have sparked a new round of global contemplation about "digital gold." The supply rules of Bitcoin are embedded in algorithms, and the total supply cap of 21 million coins cannot be changed by anyone. This algorithmically anchored scarcity is similar to the physical scarcity of gold, but is more thorough and transparent in the age of the global internet.

All Bitcoin transactions are recorded on the blockchain, and anyone globally can publicly verify the ledger without relying on any centralized institution. This attribute theoretically greatly reduces the risk of "discrepancy between the ledger and the physical assets" and significantly enhances the efficiency and transparency of settlement.

2. The "bottom-up" diffusion path of Bitcoin

Bitcoin fundamentally differs from traditional currency: traditional currency is "top-down" issued and promoted by state power, while Bitcoin is "bottom-up" adopted spontaneously by users and gradually spreads to businesses, financial institutions, and even sovereign nations.

Users first, institutions later: Bitcoin was initially adopted spontaneously by a group of crypto enthusiasts and libertarians. As network effects strengthened, prices increased, and application scenarios expanded, more and more individuals, businesses, and even financial institutions began to hold Bitcoin assets.

Passive adaptation by nations: Some countries have designated Bitcoin as legal tender, while others have approved Bitcoin-related financial products, allowing institutions and the public to participate in the Bitcoin market through compliant channels. The user base and market acceptance of Bitcoin have driven sovereign nations to passively embrace this new form of currency.

Global Borderless Expansion: The network effect of Bitcoin has transcended sovereign boundaries, with a large number of users in both developed countries and emerging markets voluntarily adopting Bitcoin in their daily lives, asset reserves, and cross-border transfers.

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

Insights into the future currency landscape:

• The separation of power and currency may occur: currency is no longer necessarily dependent on state power, but can belong to the internet, algorithms, and global user consensus.
• National support becomes "the icing on the cake": Whether Bitcoin becomes a global currency no longer solely depends on the legislative support of national institutions, as long as there are enough users and social recognition.
• New Sovereign Challenges: Sovereign nations may have to adapt in the future, or even passively accept the impact brought by "user-governed currencies."

Critique and speculation:

Limitations and Risks of User Autonomy: How to manage risks such as extreme volatility, governance challenges, and "black swan" events in the absence of sovereign backing?

Can a "bottom-up" approach address global crises? When faced with a systemic financial crisis or large-scale technological attacks, is a monetary system without central coordination more vulnerable?

Redistribution of power: Has Bitcoin really become "decentralized"? Or will new oligarchic centers emerge?

3. Realistic Limitations and Critique

Although Bitcoin has revolutionary aspects in theory and technology, it still has many limitations in practical applications:

• High price volatility: The price of Bitcoin is highly susceptible to market sentiment, policy news, and liquidity shocks, with short-term fluctuations far exceeding those of sovereign currencies.
• Low transaction efficiency and high energy consumption: The Bitcoin blockchain can only process a limited number of transactions per second, has long confirmation times, and the proof-of-work mechanism consumes a large amount of energy.
• Sovereign resistance and regulatory risks: Some countries adopt a negative or even suppressive attitude towards Bitcoin, leading to a fragmentation of the global market.
• Uneven wealth distribution and technical barriers: Early Bitcoin users and a few large holders control a significant amount of Bitcoin, leading to a high concentration of wealth. Moreover, ordinary users face certain technical barriers to participation, making them susceptible to risks such as fraud and loss of private keys.

4. The Similarities and Differences Between Bitcoin and Gold: A Thought Experiment as a Future Value Anchor

1. The Historical Leap of Transaction Efficiency and Transparency

In the era of gold as a value anchor, international bulk gold transactions often require the use of airplanes, ships, armored vehicles, and other means for physical transfer, which not only takes several days or even weeks but also incurs high transportation and insurance costs. For example, the German central bank once announced that it would repatriate its gold reserves from overseas, and the entire plan took years to complete.

Moreover, it is crucial that the global gold reserve system suffers from serious issues of account opacity and difficulty in inventorying. The ownership, storage location, and actual existence status of gold reserves often rely solely on unilateral declarations from centralized institutions. In such a system, the trust cost between countries is extremely high, and the robustness of the international financial system is constrained.

Bitcoin addresses these issues in a completely different way. The ownership and transfer of Bitcoin are recorded on-chain throughout the entire process, allowing anyone in the world to verify it in real-time and publicly. Whether individuals, businesses, or countries, as long as they have the private key, they can allocate funds at any time without the need for physical transfer or third-party intermediaries, with global settlement taking only a few minutes. This unprecedented level of transparency and verifiability gives Bitcoin an efficiency and trust foundation in large-scale settlements and value anchoring that gold cannot match.

2. The "role layering" concept of value anchors

Although Bitcoin far exceeds gold in terms of transparency and transfer efficiency, it still faces many limitations in daily payments and small-scale circulation—issues such as transaction speed, fees, and price volatility make it difficult for it to become a "cash" or M0 in reality.

However, referring to the monetary hierarchy theory such as M0/M1/M2, one can envision the following structure for the future monetary system:

• Bitcoin and other "anchor assets" serve as M1+ level stores of value and large-scale settlement tools, similar to the position of gold in central bank assets, but more transparent and easier to settle.
• Stablecoins based on Bitcoin, layer two networks, and sovereign digital currencies, undertake daily payments, micropayments, and retail settlement functions. These "sub-coins" are anchored to Bitcoin or issued backed by it, achieving a unification of circulation efficiency and value stability.
• Bitcoin has become a "general equivalent" and "measuring unit" of social resources, widely recognized by the global market, but it is not directly used for daily consumption; instead, it serves as an "anchor" for the economic system, similar to gold.

This hierarchical structure not only utilizes the scarcity and transparency of Bitcoin as a global "value anchor," but also leverages technological innovations to meet the convenience and low-cost demands of daily payments.

5. Possible Future Currency Systems