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Last week, David Schwartz, CTO of Ripple, made a video outlining a possible addition to the XRP Ledger⁠—namely, enabling the creation of stablecoin on the ledger that would be backed by XRP. As I watched the video, my curiosity turned into “THIS IS GENIUS”. And it spurred on the idea that I’m proposing in this post: that Bitcoin, despite the hubbub about it being digital gold, is actually not at all like gold in the digital world. Instead, I believe that XRP would be much more effective in that role, and I want to explain why.

To begin with, I want to talk about the history of money, and why gold plays such an important role in the real world economy, even today. This isn’t going to be very detailed, just a generalization about how currency and money has evolved over the millennia of human civilization. Then, I’ll compare gold to Bitcoin and XRP and their relative potential use-cases today.

A Brief History of Gold

When human beings first began to produce agriculture and trade goods, there came to be a realization very early on that there would need to be some kind of medium to trade. This is because different produce and goods have different value, and those different values are subjective to the seller and buyer.

For example, a farmer who produces corn has a different product compared to a carpenter who builds chairs. The farmer who spends most of his time on corn needs to have someone build him a chair so he can relax at home. Similarly, a carpenter who builds chairs needs someone to grow food for him, since he can’t spend much time on that. And so the two decide to conduct trade.

But how would you value each item? How much corn would equal one chair? What if the farmer wanted more than one chair? Also, chairs last a while longer than corn. So you need to factor in how crops expire in comparison to the longevity of furniture products.

Pretty soon, it was realized that it would be far easier to just have a medium which can be used to represent value, and let buyers and sellers decide on their own whether they thought the value was worth it. And so we come to deciding what kind of medium could be used to represent that value.

Historically, many different materials were tried. From tea bricks to cowry shells and even dolphin teeth, it seemed like everything under the sun was tried as a medium of exchange. As civilization evolved though, only one universal material was found that was rare, useful, and long lasting. That, of course, was gold. Gold is rare enough that you can’t easily obtain it (which means counterfeiting is difficult). It is useful for jewelry, decoration and aesthetics, and a multitude of other things. Additionally, it never rusts or tarnishes. A gold bar today will be the same gold bar in 1000 years, as it was 1000 years ago. And so, the civilized world came to recognize and eventually use gold as the standard for all currency.

Soon afterwards, IOU’s and receipts were used to transmit the ownership of gold back and forth between people. This was because it’s much harder to lug gold around than just sign off a piece of paper that said what belonged to whom. These IOU’s and receipts then began circulating, and eventually became the dollar currencies we have today. Originally, these fiat currencies were all backed by gold, but slowly, over the course of the 20th Century, most nations stopped using the gold standard.

An argument can be made that the lack of a gold standard has placed our current world economy in the precarious position it is in today. However, for the purposes of this post, it’s more important to realize that, even though gold was not the standard anymore, it is still considered extraordinarily valuable⁠—so much so that, outside of official government endorsement, many people still use it as collateral (and thus currency) for exchanges today. In fact, in the face of coming recessions, many people hedge and buy gold to stabilize their value, rather than rely on unstable stock markets or ever depreciating government bonds.

The Case of Bitcoin

There are many in the cryptocurrency and blockchain space who believe that Bitcoin is a virtual analog to real gold in the Internet space. To justify this, they point to several features of Bitcoin that seem to plausibly point to characteristics of gold. Due to the nature of the Internet, as long as it exists, Bitcoin will also exist, thus solving the longevity problem. Furthermore, it achieves a sort of rarity through a maximum cap on the total number of coins that can or will ever be in existence (21 million). And, to top it off, as an immutable virtual coin which (theoretically) cannot be double spent, it can be used to store or transfer value, giving it utility.

But, in my point of view, that’s where the analogy stops, especially if we dive deeper into what gold actually is and does in our world.

In terms of rarity, gold’s rarity is because there is no other metal like it. In the case of Bitcoin, there are many other coins that are just like Bitcoin, and some of them are better. For example, Litecoin, which was made purely just as a better Bitcoin with no other additional functionality, is far better as a transfer of value, since it is also much faster. And so, here, both the rarity and longevity argument is non-sequitur, since there are many others just like Bitcoin on its own terms.

And so we come to the question of utility. Gold’s utility is not just as a currency or even as a store of value. Rather, due to its allure and properties as a metal, it can be used for many other purposes as well. Since Bitcoin has no other utility than as a speculated store of value, it’s actually not like gold at all!

Additionally, gold’s three properties are valued because they relate to the physical world. In the physical world, simplicity and tangibility are the fundamental principles. However, those two aspects do not necessarily translate to the digital world. Instead, in the digital world, from my perspective, speed and security are the principle values. If something isn’t fast, then it’s not only frustrating to deal with, but I would rather just do something similar in the real world. If something isn’t secure, I definitely don’t want to touch it.

When it was first developed, Bitcoin was considered quite fast, taking little more than ten minutes to move coins from one wallet to another. However, due to increasing traffic in this space, it can now take from an hour to several days before a Bitcoin transaction is settled. That is no better than our current money systems.

In terms of security, a lot has been made of the fact that, since it takes so much power and money to just mine Bitcoin nowadays, an attack to make the Bitcoin network double spend (and thus make transactions fraudulent) is not likely to happen. This is not true. To learn more about this, I recommend checking out this blog from Galgitron that explains just how vulnerable Bitcoin is. But in summary, not only is Bitcoin susceptible to attack, that attack can currently happen at almost any time.

And so, since Bitcoin breaks both the speed and security principles of the Internet world, and it doesn’t truly fulfill the other values in the virtual space as an analog for gold, it seems quite clear that Bitcoin is not digital gold. It’s more like digital cowry shells. It may have been the first blockchain-based cryptocurrency, just as cowry shells were used in primitive cultures in the past before societies evolved, but it will probably become obsolete sooner or later.

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