Bitcoin: A Thought Experiment on the Next Generation of Currency Value Anchors

Author: Weimans Notes

Introduction

Currency is one of the most profound and widely accepted inventions in the progress of human civilization. From barter to metallic currency, from the gold standard to sovereign credit currency, the evolution of money has always accompanied changes in trust mechanisms, transaction efficiency, and power structures. Today, the global monetary system faces unprecedented challenges: currency overproduction, trust crises, worsening sovereign debt, and geopolitical shocks triggered by dollar hegemony.

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

"The revolutionary nature of Bitcoin lies not only in its technology and algorithms but also in its role as the first 'bottom-up' monetary system driven by users in human history, challenging the millennium paradigm of state-dominated currency issuance."

This article will review the historical evolution of monetary anchors, critique the dilemmas of the current gold reserve system, analyze the economic innovations and limitations of Bitcoin, explore Bitcoin as a thought experiment for the future value anchor, and envision possible pluralistic evolutionary paths for the global monetary system.

I. Historical Evolution of Monetary Anchors

1. The Birth of Barter and Commodity Money

The earliest economic activities of humans primarily relied on the "barter" model, where both parties in a transaction had to possess the goods that the other desired. This "double coincidence of wants" greatly limited the development of production and circulation[1]. To solve this problem, universally accepted goods (such as shells, salt, livestock, etc.) gradually became "commodity money," laying the foundation for later precious metal currencies.

2. The Gold Standard and Global Settlement System

As civilization progressed, gold and silver, due to their scarcity, ease of division, and difficulty of alteration, became the most representative general equivalents. Ancient empires such as Egypt, Persia, Greece, and Rome used metallic 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 officially established the gold standard in 1816, with other major economies gradually following suit. The greatest advantage of this system was the clear "anchor" of currency and low trust costs between countries, but it also resulted in currency supply being limited by gold reserves, making it difficult to support the expansion of industrialization and globalization (such as "gold shortages" and deflation crises)[2].

3. The Rise of Credit Currency and Sovereign Credit

In the first half of the 20th century, two world wars severely impacted the gold standard system. The Bretton Woods system was established in 1944, linking the dollar to gold, with other major currencies pegged to the dollar, forming a "dollar standard." In 1971, the Nixon administration unilaterally announced the decoupling of the dollar from gold, marking the official entry of global sovereign currencies into the era of credit currency, where nations issued currency based on their own credit and regulated the economy through debt expansion and monetary policy.

Credit currency brought great flexibility and economic growth potential but also sowed the seeds of trust crises, hyperinflation, and currency overproduction. Third World countries frequently fell into currency crises (such as Zimbabwe, Argentina, Venezuela, etc.), and even emerging economies like Greece and Egypt struggled amid debt crises and foreign exchange turmoil[2].

II. 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 worldwide. Currently, about one-third of official gold reserves 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 also brings significant issues of concentration and opacity.

For example, Germany once announced plans to repatriate part of its gold reserves from the U.S., citing distrust of the U.S. vault's accounts and the long-standing inability to conduct on-site audits. It is difficult for outsiders to verify whether the vault's accounts match the actual gold reserves. Additionally, the proliferation of "paper gold" derivatives further weakens the correspondence between "account gold" and physical gold.

2. The Non-M0 Nature of Gold

In modern society, gold no longer possesses the attributes of a currency in daily circulation (M0). Individuals and businesses cannot directly settle daily transactions with gold, and it is even challenging to hold and transfer physical gold directly. The primary role of gold is more as a settlement tool between sovereign nations, a reserve for large assets, and a hedge in financial markets.

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

III. Economic Innovations and Real Limitations of Bitcoin

1. Bitcoin's "Algorithmic Anchoring" and Monetary Attributes

Since its inception in 2009, Bitcoin's fixed supply, decentralization, and transparent verifiability have sparked a new round of thinking about "digital gold" globally. The supply rules of Bitcoin are encoded in algorithms, with a total cap of 21 million coins that no one can change. This "algorithmic anchoring" scarcity is similar to the physical scarcity of gold but is more thorough and transparent in the era of the global internet.

All Bitcoin transactions are recorded on the blockchain, allowing anyone globally to publicly verify the ledger without relying on any centralized institution. This attribute theoretically greatly reduces the risk of "discrepancies between account and physical holdings" and significantly enhances the efficiency and transparency of clearing and settlement[3].

2. Bitcoin's "Bottom-Up" Diffusion Path

Bitcoin fundamentally differs from traditional currencies in that traditional currencies are "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 lead, institutions follow: Bitcoin was initially adopted spontaneously by a group of cryptography enthusiasts and libertarians. As network effects strengthened, prices rose, and application scenarios expanded, more individuals, businesses, and even financial institutions began to hold Bitcoin assets.

Nations adapt passively: 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 transcends sovereign boundaries, with a large number of users in both developed countries and emerging markets spontaneously adopting Bitcoin in daily life, asset reserves, and cross-border transfers.

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

Implications for the Future Monetary Landscape:

- The possibility of separating power from currency: Currency no longer necessarily depends 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 entirely depends on legislative support from state institutions, as long as there are enough users and social recognition.

- New sovereign challenges: Sovereign nations may have to adapt to or even passively accept the impacts brought by "user-governed currencies."

Critique and Reflection:

- Limitations and risks of user governance: In the absence of sovereign endorsement, how to manage risks such as extreme volatility, governance issues, and "black swan" events?

- Can "bottom-up" respond to global crises? In the event of a systemic financial crisis or large-scale technological attack, is a decentralized monetary system without central coordination more vulnerable?

- Redistribution of power: Has Bitcoin truly "decentralized"? Or will new oligarchic centers emerge?

3. Real Limitations and Critique

Although Bitcoin is revolutionary in theory and technology, it still faces many limitations in practical applications:

- High price volatility: Bitcoin prices are 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 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 negative or even repressive attitudes toward Bitcoin, leading to a fragmented global market.

- Uneven wealth distribution and technical barriers: Early Bitcoin users and a few large holders control a significant amount of Bitcoin, leading to highly concentrated wealth. Additionally, ordinary users face certain technical barriers to participation and are vulnerable to fraud and the risk of losing private keys.

IV. Similarities and Differences Between Bitcoin and Gold: A Thought Experiment for the Future Value Anchor

1. Historical Leap in Transaction Efficiency and Transparency

In the era when gold served as a value anchor, international large-scale gold transactions often required the use of planes, ships, armored vehicles, etc., for physical transfers, taking days or even weeks and incurring high transportation and insurance costs. For example, the German central bank announced plans to repatriate gold reserves from abroad, a process that took years to complete.

More critically, the global gold reserve system suffers from severe opacity and auditing difficulties. Ownership, storage locations, and actual existence of gold reserves often rely solely on unilateral statements from centralized institutions. In such a system, the trust costs between nations are 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, allowing anyone globally to verify in real-time and publicly. Whether individuals, businesses, or nations, as long as they possess the private key, they can allocate funds at any time without physical transfer or third-party intermediaries, with global transactions completed in just minutes. This unprecedented transparency and verifiability give Bitcoin an efficiency and trust foundation in large-scale settlements and value anchoring that gold cannot match.

2. The Concept of "Role Layering" for Value Anchors

Although Bitcoin far surpasses gold in 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 to serve as "cash" or M0 in reality.

However, referencing the currency hierarchy theory of M0/M1/M2, we can envision a future monetary system with the following structure:

• Bitcoin and similar "anchors" as M1+ level value storage and large-scale settlement tools, akin to gold's position in central bank assets but more transparent and easier to settle.

• Stablecoins, second-layer networks (such as the Lightning Network), and sovereign digital currencies (CBDCs) based on Bitcoin, fulfilling daily payment, micropayment, and retail settlement functions. These "sub-currencies" are anchored to Bitcoin or issued with its backing, achieving a balance between circulation efficiency and value stability.

• Bitcoin becomes a "general equivalent" and "unit of measurement" for social resources, widely recognized in global markets, but not directly used for daily consumption, instead serving as an "economic ballast" like gold.

This layered structure can utilize Bitcoin's scarcity and transparency as a global "value anchor" while leveraging technological innovations to meet the demands for convenience and low-cost daily payments.

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

1. Multi-layered, Multi-role Currency Structure

The future monetary system is likely to no longer be dominated by a single sovereign currency but rather coexist in a three-layer structure of "value anchor—payment medium—local currency," with cooperation and competition running parallel:

• Value anchor: Bitcoin (or similar digital assets) as a decentralized global reserve asset, fulfilling roles such as cross-border settlement, central bank reserves, and value hedging.

• Payment medium: Stablecoins, sovereign digital currencies, Lightning Network, etc., anchored to Bitcoin or sovereign currencies, facilitating daily circulation, payments, and pricing.

• Local currency: National currencies continue to perform regulatory and management functions in local economies, achieving tax, social welfare, and economic policy objectives.

In this multi-layered structure, the three major functions of currency (medium of exchange, unit of account, store of value) will be more clearly divided among different currencies and layers, enhancing the global economy's risk diversification and innovation capacity.

2. New Trust Mechanisms and Potential Risks

However, this new system is not without risks. Can algorithms and network consensus truly replace the credit of national sovereignty and central institutions? Will Bitcoin's decentralized characteristics be eroded by oligarchs of computing power, governance loopholes, or technological advancements? Regulatory divergences, policy conflicts, and "black swan" events globally could all become destabilizing factors for the future monetary system.

Moreover, sovereign nations may impose strong regulations, taxes, and technological blockades to curb Bitcoin's expansion in order to protect their own interests. Whether Bitcoin can achieve a truly global consensus through a "bottom-up" path and maintain its status as "digital gold" in the long term remains to be seen.

Conclusion and Open Questions

Reflecting on the evolution of currency, from barter to the gold standard and then to credit currency, each replacement of "anchors" has been accompanied by profound changes in trust mechanisms and social organization. The emergence of Bitcoin has 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 effects provide a new thought experiment for the future monetary system.

However, the road to Bitcoin's revolution is not smooth. Issues such as price volatility, governance challenges, regulatory risks, and technical barriers need urgent resolution. Whether Bitcoin can ultimately 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 restructuring of global economic, social, and political frameworks.

Open Questions:

• If not Bitcoin, what will be the future value anchor?

• How will the ultimate trust foundation of currency evolve?

• In the balance between state power, user autonomy, and algorithmic governance, what direction will the future global value system take?

As we continuously chase the next opportunity in the new narrative and technological wave, perhaps the most worthy of attention are those seemingly "simple" yet profoundly penetrating innovations. Bitcoin, as a monetary experiment of the internet age, deserves our continued deep reflection.

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