Bitcoin: The Currency Revolution Experiment of the Internet Era

Introduction

Currency is one of the most far-reaching inventions in the process of human civilization. From the initial barter system to metal coins, and then to the gold standard and sovereign credit currency, the evolution of currency has always been accompanied by changes in trust mechanisms, transaction efficiency, and power structures. Currently, the global currency system is facing unprecedented challenges, including excessive currency issuance, trust crises, sovereign debt issues, and geopolitical conflicts triggered by the hegemony of the US dollar.

The emergence of Bitcoin and its increasingly expanding influence prompts us to rethink the essence of currency and the possible forms of future "value anchors". Bitcoin is not only revolutionary at the technical and algorithmic level, but more importantly, as the first "bottom-up" currency system driven spontaneously by users in human history, it is challenging the millennium paradigm of state-dominated currency issuance.

This article will review the historical evolution of currency anchors, analyze the dilemmas of the current gold reserve system, explore the economic innovations and limitations of Bitcoin, and conduct thought experiments on Bitcoin as a future value anchor, while looking forward to the diversified development paths of the global monetary system.

1. 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, which required both parties to have exactly what the other needed, severely limiting the development of production and circulation. To address this issue, 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

After entering a civilized society, gold and silver became the most representative general equivalents due to their scarcity, ease of division, and difficulty of alteration. Ancient civilizations such as Egypt, Persia, Greece, and Rome used metal currency as a symbol of national power and social wealth.

In the 19th century, the gold standard was established globally, linking national currencies to gold and standardizing international trade and settlement. The UK officially established the gold standard in 1816, followed by other major economies. The biggest advantage of this system was the clear "anchor" for currency and low trust costs between countries, but it also led to the limitation of currency supply by gold reserves, making it difficult to support the expansion of industrialized and globalized economies.

3. The Rise of Fiat Currency and Sovereign Credit

In the first half of the 20th century, the two World Wars completely shook 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 dollar, forming a "dollar standard." In 1971, the US government unilaterally announced the decoupling of the dollar from gold, marking the official entry of 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 sown the seeds of trust crises, hyperinflation, and excessive currency issuance. Many developing countries frequently fall into currency crises, and even some emerging economies are struggling amid debt crises and foreign exchange turbulence.

2. The Real Dilemmas of the Gold Reserve System

1. Concentration and Opacity of Gold Reserves

Although the gold standard has become a thing of the past, gold remains an important reserve asset on the balance sheets of central banks around the world. 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 within the international financial system after World War II, but it has also led to significant concentration and transparency issues.

For example, Germany announced that it would repatriate part of its gold reserves from the United States, partly due to distrust in the U.S. Treasury's accounts and the long inability to conduct on-site audits. It is difficult for outsiders to verify whether the Treasury's accounts are consistent with the actual gold reserves. In addition, the proliferation of derivatives such as "paper gold" further weakens the correspondence between "book gold" and physical gold.

2. The non-M0 attribute of gold

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

International gold settlements typically involve complex clearing processes, long time delays, and high security costs. Moreover, 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 having real circulating value.

3. The Economic Innovations and Real Limitations of Bitcoin

1. Bitcoin's "algorithmic anchoring" and monetary attributes

Since its birth in 2009, Bitcoin's characteristics of a fixed total supply, decentralization, and transparency have sparked a new round of thinking about "digital gold" worldwide. The supply rules of Bitcoin are written into 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 era of the global internet.

All Bitcoin transactions are recorded on the blockchain, and anyone around the world 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 clearing and settlement.

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

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

This diffusion pattern indicates that whether Bitcoin can become a global currency is no longer solely dependent on the "approval" of nations or institutions, but rather on whether there are enough users and market consensus. This change has important implications for the future currency landscape:

1. Currency may no longer necessarily be tied to national power, but can belong to the internet, algorithms, and a global user consensus.
2. Whether Bitcoin becomes a global currency no longer completely depends on the legislative support of national institutions; as long as there are enough users and social recognition, it can happen.
3. Sovereign countries may have to adapt in the future, or even passively accept the impact brought by "user-governed currencies."

However, this model also faces numerous challenges: how to manage risks such as extreme volatility, governance issues, and "black swan" events in the absence of sovereign backing? When faced with systemic financial crises or large-scale technological attacks, is a currency system lacking central coordination more vulnerable? Has Bitcoin truly achieved "decentralization", or will new oligarchic centers emerge?

3. Realistic 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 trading efficiency and high energy consumption: The Bitcoin blockchain has a limited number of transactions processed per second, long confirmation times, and the proof-of-work mechanism consumes a large amount of energy.
• Regulatory risk: Some countries have adopted a negative or even repressive attitude towards Bitcoin, leading to a fragmented global market.
• Uneven wealth distribution and technical barriers: Early Bitcoin users and a small number of large holders control a significant amount of Bitcoin, leading to a highly concentrated wealth. Additionally, ordinary users need to overcome certain technical barriers to participate, making them susceptible to risks such as fraud and loss of private keys.

IV. Similarities and Differences between Bitcoin and Gold: A Thought Experiment as Future Value Anchor

1. The Historical Leap in Transaction Efficiency and Transparency

In the era where gold serves as a value anchor, large-scale international gold transactions often require the use of airplanes, ships, armored vehicles, and other means for physical transfer, which not only takes a long time but also incurs high transportation and insurance costs. More critically, there are serious issues of lack of transparency and difficulty in auditing within the global gold reserve system.

Bitcoin addresses these issues in a completely different way. The ownership and transfer of Bitcoin are recorded on-chain throughout the process, allowing anyone in the world to verify it in real-time and publicly. Whether it's individuals, businesses, or countries, as long as they have the private key, they can allocate funds at any time without physical transfer or third-party intermediaries, with global arrival in just a few minutes. This unprecedented transparency and verifiability give Bitcoin an efficiency and trust foundation in bulk settlement 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. Referring to the currency tiering theory such as M0/M1/M2, one can imagine the following structure for the future currency system:

• Bitcoin and other "anchor assets" serve as M1+ level value storage and bulk settlement tools, similar to the position of gold in central bank assets, but more transparent and easier to settle.
• Stablecoins based on Bitcoin, second-layer networks (such as the Lightning Network), sovereign digital currencies (CBDC), etc., undertake daily payments, micropayments, and retail settlement functions. These "sub-coins" are anchored to Bitcoin or issued with its backing, achieving a unification of circulation efficiency and value stability.
• Bitcoin has become the "general equivalent" and "unit of account" of social resources, widely recognized by the global market, but is not directly used for daily consumption; instead, it serves as the "ballast" of the economic system, much like gold.

This layered structure can leverage the scarcity and transparency of Bitcoin as a global "value anchor," while also utilizing technological innovation to meet the convenience and low-cost demands of everyday payments.

5. Possible Evolution of Future Currency Systems and Critical Thinking

1. Multi-tiered, multi-role currency structure

The future currency system is likely to no longer be dominated by a single sovereign currency, but rather coexist with three layers: "value anchor - payment medium - local currency," where cooperation and competition run parallel.

• Value Anchor: Bitcoin (or similar digital assets) serves as a decentralized global reserve asset, fulfilling the role of "high-level currency" for cross-border settlement, central bank reserves, and value hedging.
• Payment mediums: stablecoins, sovereign digital currencies, Lightning Network, etc., anchored to Bitcoin or sovereign currencies, to achieve daily circulation, payment, and pricing.
• Local currency: The local currencies of various countries continue to play a role in adjusting and managing the local economy, achieving taxation, social welfare, and economic policy goals.

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

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 the decentralized features of Bitcoin be eroded by oligopolies of computing power, governance protocol vulnerabilities, or technological advancements? Global regulatory discrepancies, policy conflicts, and "black swan" events may all become instability factors in the future monetary system.

In addition, sovereign countries may restrict the expansion of Bitcoin through strong regulation, taxation, and technological blockades to protect their own interests. Whether Bitcoin can truly achieve global consensus and maintain its status as "digital gold" in a "bottom-up" manner still requires the test of time.

Conclusion and Open Questions

Looking back at the evolution of currency, from barter to the gold standard, and then to fiat currency, each change of "anchor" has been accompanied by profound transformations 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 for the first time. Its "bottom-up" diffusion model, transparent and verifiable ledger, and global network effects provide a brand new thought experiment for the future monetary system.

However, the road of the Bitcoin revolution is not smooth. Issues such as price volatility, governance challenges, regulatory risks, and technical barriers need to be addressed. Bit