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

Introduction

Currency is one of the most profound and consensual inventions in the process of human civilization. From bartering to metal currency, from the gold standard to sovereign credit currency, the evolution of currency accompanies the changes in trust mechanisms, transaction efficiency, and power structures. Today, the global monetary system is facing unprecedented challenges: currency overissuance, trust crises, worsening sovereign debt, and geopolitical economic turmoil triggered by the hegemony of the US dollar.

The emergence of Bitcoin and its increasingly expanding influence prompts us to rethink: what is the essence of currency? In what form will the future "value anchor" exist?

The revolutionary nature of Bitcoin is not only reflected in its technology and algorithms, but also in the fact that it is the first "bottom-up" monetary system in human history driven spontaneously by users, challenging the millennia-old paradigm of state-led 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, consider the possibility of Bitcoin as a future value anchor, and look forward to the diversified development 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 primarily relied on the "barter" model, where both parties involved in the transaction had to possess exactly the items that the other needed. This "coincidence of double demand" greatly limited 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 such as scarcity, divisibility, and resistance to tampering, became the most representative general equivalent. Ancient civilizations such as Egypt, Persia, Greece, and Rome 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 officially established the gold standard in 1816, and other major economies gradually followed suit. The greatest advantage of this system lies in 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 the global economy (such as the "gold shortage" and deflation crisis).

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 currency, where countries issue currency based on their own credit and manage 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 money issuance. Third world countries repeatedly fall into local currency crises, and even emerging economies like Greece and Egypt are struggling in debt crises and foreign exchange turmoil.

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 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 by the international financial system after World War II, but it has also brought significant issues of concentration and lack of transparency.

For example, Germany once announced that it would repatriate part of its gold reserves from the United States, one reason being distrust of the U.S. treasury accounts and the long inability 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 correlation between "account gold" and physical gold.

2. The non-M0 attribute of gold

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

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

3. The Economic Innovation and Real Limitations of Bitcoin

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

Since its inception in 2009, Bitcoin has sparked a new round of thinking about "digital gold" globally due to its characteristics of a fixed supply, decentralization, and transparency that can be verified. The supply rules of Bitcoin are written into the algorithm, and the total supply cap of 21 million coins cannot be altered by anyone. This "algorithmically anchored" scarcity is similar to the physical scarcity of gold, but it 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 institutions. 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 differs fundamentally from traditional currency: traditional currency is 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.

User first, institutions later: Bitcoin was initially adopted spontaneously by a group of cryptographic enthusiasts and libertarians. As the network effect strengthened, prices rose, and application scenarios expanded, more and more individuals, businesses, and even financial institutions began to hold Bitcoin assets.

Passive adaptation by countries: 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 broken through sovereign boundaries, with a large number of users in both developed countries and emerging markets spontaneously 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 solely depends on the "approval" of countries or institutions, but rather on whether there are enough users and market consensus.

Implications for the Future Currency Landscape:

• The possible separation of power and currency: currency no longer necessarily depends 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, it can succeed.
• New Sovereign Challenges: Sovereign nations may have to adapt to, or even passively accept, the impacts brought by "user-governed currencies" in the future.

3. Realistic Limitations and Critique

Although Bitcoin has revolutionary characteristics 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 has a limited number of transactions it can process per second, 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 repressive attitude towards Bitcoin, resulting in a fragmented global market.
• Uneven distribution of wealth and technological barriers: Early Bitcoin users and a small number of large holders control a significant amount of Bitcoin, resulting in a high concentration of wealth. Moreover, ordinary users require a certain level of technical knowledge to participate, making them susceptible to risks such as fraud and loss of private keys.

IV. The Similarities and Differences Between Bitcoin and Gold: A Thought Experiment on Future Value Anchors

1. The Historical Leap in Transaction Efficiency and Transparency

In the era where gold serves 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 days or even weeks but also incurs high transportation and insurance costs. For example, the German central bank once announced the repatriation of its gold reserves from overseas, and the entire plan took several years to complete.

More critically, there are serious issues of account opacity and counting difficulties within the global gold reserve system. The ownership, storage location, and actual existence status of gold reserves often rely solely on unilateral statements from centralized institutions. In such a system, the trust costs between countries 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 throughout the process, allowing anyone worldwide to verify in real-time and publicly. Whether individuals, businesses, or nations, anyone with a private key can access funds at any time without the need for physical transfer or third-party intermediaries, with global settlement taking only a few minutes. This unprecedented transparency and verifiability give Bitcoin an efficiency and trust foundation in large-scale 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—issues such as transaction speed, fees, and price volatility make it difficult to become a "cash" or M0 in reality.

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

• Bitcoin and other "anchor assets" serve as value storage and large-scale settlement tools at the M1+ level, similar to the position of gold in central bank assets, but more transparent and easier to settle.
• Stablecoins based on Bitcoin, layer two networks (such as the Lightning Network), and sovereign digital currencies (CBDC), undertake functions of daily payments, micropayments, and retail settlements. These "subcoins" are anchored to Bitcoin or issued backed by it, achieving a unity of circulation efficiency and value stability.
• Bitcoin has become a "general equivalent" and "unit of measurement" for social resources, widely recognized by global markets, yet it is not directly used for daily consumption, but rather serves as the "ballast" of the economic system, much like gold.

This layered structure can utilize the scarcity and transparency of Bitcoin as a global "value anchor," while also leveraging technological innovations to meet the convenience and low-cost requirements of everyday payments.

V. Possible Evolution of Future Currency Systems and Critical Thinking

1. Multi-tiered, multi-role currency structure

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

• Value Anchor: Bitcoin (or similar digital assets) serves as a decentralized global reserve asset, taking on 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 currency, achieving daily circulation, payment, and pricing.
• Local currency: The local currencies of various countries continue to undertake the regulation and management functions of the local economy, achieving tax collection, social welfare, and economic policy objectives.

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 tiers, and the global economy's risk diversification and innovation capability will also improve.

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 nature of Bitcoin be eroded by power oligarchs, protocol governance loopholes, or technological advancements? Global monitoring...