In “Gold: Reasons Why it is a Good Form of Money,” I wrote about why gold is a good form of money. However, I wrote that gold does not have intrinsic value. While this is true, what it has in value comes very close to being intrinsic. And it is for that reason that it is superior in many ways to cryptocurrency like Bitcoin.

It is humans that give things like gold its value, at least in terms of economic value. After all, it is humans that create economies. But there are reasons why humans have given value to gold. There are also reasons why humans have given value to bitcoin. The reason bitcoin has value is because it is used as a currency. Its demand comes from the fact that we have chosen to use it as a currency. There is no other source of value for bitcoin.

Gold however is used as far more than just currency. It is used in jewelry, electronic equipment, in medical technology, and more. Indeed, gold rarely even used as a currency right now, because various governments place restrictions on that use of gold. However, in a discussion a while back, someone argued that its value in things like jewelry largely comes from the fact that it has been used as a currency. It is true that gold can be used as a potential currency in times of economic devastation, and even if we do not currently use gold as currency, a lot of people believe that gold will function as a currency in cases of economic collapse.

But there are other reasons why gold is used in jewelry. Its use likely predates its use as currency, and it was used as currency because we found other value in it. This value is derived from our own evolutionary psychology. In “Taking a shine to it: How the preference for glossy stems from an innate need for water” a team of researched sought to investigate the reason why humans seem to be drawn to glossy items. They conducted six different experiments: three experiments were used to try to eliminate the possibility that the enculturation process has instilled the preference in adults, and the other three experiments were used to determine whether or not it was simply a matter of the material being “pretty.”

The study results are consistent with the idea that our gravitation towards glossy objects is innate, rather than learned, and that it has to do with more than just visual aesthetics. But this potential link to our evolutionary history is just one factor involved in why gold is attractive to us. Due to the way our eyes and visual cortex functions, yellow is extremely visible. It is perceived as one of the “brightest” colors. Gold, while not exactly yellow, is very close to yellow in color, and so it stands out to humans. It is at least partially because of these two reasons that humans are drawn to gold.

On the other hand, bitcoins do not even exist outside of the digital world. The only reason bitcoin has any value at all is because people are currently using it as a currency. Its use as a currency totally drives its value and its value drives its continued use as a currency. If people stopped using bitcoin as a currency, it would become totally worthless. Gold, on the other hand, would still have other uses, and its value is even tied to our evolutionary history. Those other uses, and its impact on our psychology, along with its durability, divisibility, portability, and scarcity, all make gold a solid candidate for currency and make it superior in almost every way to bitcoin. This does not mean that I do not like bitcoin. I do. I just do not like it as much as gold. I also like the blockchain system and think that blockchain is a great way to exchange ownership of gold. A few institutions are researching the use of blockchain in simplifying gold transactions.

Inflation

One point that I forgot to mention in the first version of this article is that bitcoin is limited. No matter how much of a demand there is, we will run out of bitcoin in the near future. Gold is limited too, but there is currently enough gold that suppliers can increase production when demand increases. This allows for mitigation of inflationary pressure. Bitcoin is naturally inflationary. Anything, for which we cannot adjust production, to balance mismatches between supply and demand, are poor currencies. Instead, bitcoin is essentially just a speculative vehicle.

Further Reading

• Gold vs Bitcoin