The nature of precious metal currencies, legal tender and Bitcoin

Payment is the basic function of money. The superiority of a payment system fundamentally depends on its nature as money. From the original shell currency to the current legal tender system, money has developed into a complex system. It is not just the banknotes in your hand, but a series of economic activities that even the central bank cannot control. To compare the payment advantages of different currencies, we first need to compare the essential differences between various currencies.

The so-called essence is the fundamental reason why a currency becomes a currency, that is, why others are willing to exchange valuable things for the so-called currency in your hand. Shells, wheat, gold, and silver become currencies because they have some use and are scarce before they become currencies, that is, they have value. This value is widely recognized, so the acceptors are convinced that it can be exchanged for other things they need. In the exchange, people found that the natural properties of gold and silver are more convenient to store, transport, divide, and measure than other commodities, and gradually formed a consensus on using gold and silver as currency. In other words, the essence of precious metal currency lies in its existing value supported by its natural properties and widely recognized by society.

The value represented by the coin exceeds the value of the precious metal content because it contains people's trust in the coiner or issuer. As a currency, paper money, when it still represents precious metals and can be exchanged for precious metals at any time, its value comes from precious metals, but when it is decoupled from precious metals, it completely loses the social value supported by its natural attributes, and its basis is entirely the trust in the issuer. Why do people trust the issuer? Initially, it was due to the long-term accumulated reputation and visible asset protection of the issuer, which is private paper money. As the state became the only issuer, state power became the basis of paper money, because some people trust the government and the rest fear the government. Such paper money is called legal tender, and its essence is state power. Even if its form expands from paper money to bookkeeping currency and electronic currency, its essence has not changed.

Bitcoin is essentially a man-made public currency. In fact, since the beginning of coinage, currency has had traces of being man-made. Today's legal tender only has a little bit of the natural properties of paper. Bitcoin, on the other hand, has no physical form at all. Its existence is based entirely on four technologies and systems designed by humans: first, asymmetric encryption technology, which realizes simple and secure currency control; second, a distributed consensus verification mechanism, which makes the system independent of any centralized power organization; third, blockchain technology, which creates an unchangeable transaction record; and fourth, a proof-of-work mechanism, which ensures honest accounting. Based on the above technologies, Bitcoin has become a man-made public currency system that everyone can participate in and no one can judge.