There is a constant war of ideas being fought between gold bugs, like Peter Schiff, and supporters of bitcoin. In order to accurately compare and contrast gold and bitcoin, we will need to weigh each asset against the various attributes that make a given form of money good money. We will also need to dive into monetary history in order to understand what happens when the prevailing money during a given point in time is confronted by superior money.
The topics we will be covering in this article include the following: the history of money, stock-to-flow ratio, shipping and transaction costs, storage costs, censorship resistance, settlement time, efficacy of a blockchain versus a clearing house and the ease of validating the underlying asset.
Some additional items of historical relevance to our topic will also be used to support our findings. These items include Executive Order 6102 as well as the costs paid by Madrid to Moscow in order to transport gold from Spain to Russia during the Spanish Civil War. Finally, we will estimate the hypothetical cost for Venezuela to repatriate its gold from England based on the historical precedent indicated above. This final point will tie together some of the various difficulties of transacting in gold at scale.
But first, we need to cover two key monetary principles: Gresham’s law and Thier’s law.
Gresham’s law is named after Thomas Gresham. Gresham was an English merchant and financier under the House of Tudor during the 16th Century. Gresham’s law states, in short, that “bad money drives out good money.”
His observation appears to stem from a period of English history known as The Great Debasement (1544 to 1551). Henry VIII had sought to increase revenue for the Crown and began a process of removing the gold and silver content of the coins that were in circulation. This process inevitably led to the hoarding of coins with the higher gold and…