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

Currency is one of the most profound and consensual inventions in the process of human civilization. From barter to metal currency, and then to sovereign credit currency, the evolution of currency has always accompanied changes in trust mechanisms, transaction efficiency, and power structures. Currently, the global monetary system is facing unprecedented challenges: excessive currency issuance, trust crises, worsening sovereign debt, and geopolitical economic turmoil triggered by the dominance of the US dollar.

The emergence of Bitcoin and its increasingly expanding influence compel us to rethink: what is the essence of currency? In what form will the future "value anchor" exist? The revolutionary nature of Bitcoin is reflected not only in its technology and algorithms but also in that it is the first "bottom-up" currency system spontaneously driven by users in human history, challenging the millennium 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, and look forward to possible diverse evolutionary 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 in a transaction had to possess exactly the items the other needed. This "coincidence of double coincidence of wants" greatly limited the development of production and circulation. To solve this problem, goods 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

In civilized society, gold and silver, due to their natural properties such as scarcity, divisibility, and resistance to alteration, have become the most representative general equivalents. Ancient civilizations such as Egypt, Persia, Greece, and Rome all used metallic currency as symbols 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, with other major economies gradually following suit. The greatest advantage of this system was the clear "anchor" for currency and low trust costs between countries, but it also led to issues where the supply of currency was constrained by gold reserves, making it difficult to support industrialization and the expansion of the global economy.

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 dollar, forming the "dollar standard." In 1971, the US government 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 managed the economy through debt expansion and monetary policy.

Fiat currency has brought great flexibility and economic growth potential, but it has also sown the seeds of trust crises, severe inflation, and currency overissuance. Many countries have fallen into local currency crises, and even some emerging economies face difficulties amid debt crises and foreign exchange turbulence.

II. The Real Dilemma of the Gold Reserve System

1. Centralization 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 within the international financial system after World War II, but it has also led to significant issues of concentration and opacity.

Some countries have announced the repatriation of part of their gold reserves from the United States, one reason being distrust in the U.S. treasury accounts and the prolonged failure to conduct on-site audits. It is difficult for outsiders to verify whether the treasury accounts are consistent with the actual gold reserves. Furthermore, the proliferation of derivatives like "paper gold" has further weakened the correspondence between "account gold" and physical gold.

2. The non-M0 attribute of gold

In modern society, gold no longer possesses the attributes of a currency in daily circulation (M0). Individuals and businesses cannot directly use gold to settle daily transactions, and it is even difficult to directly hold and transfer physical gold. The main role of gold is more as a settlement tool between sovereign nations, a reserve for large assets, and a hedging instrument 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, with account audits relying on the trust endorsement of centralized institutions. This increasingly renders gold's role as a global "value anchor" more symbolic than a reflection of actual circulating value.

3. The Economic Innovations and Real Limitations of Bitcoin

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

Since its inception in 2009, Bitcoin's characteristics of a constant total supply, decentralization, and transparency have sparked a new round of thinking about "digital gold" globally. The supply rules of Bitcoin are encoded in algorithms, and the total cap of 21 million coins cannot be altered by anyone. This "algorithmically anchored" scarcity is similar to the physical scarcity of gold, but is even more thorough and transparent in the era of the global internet.

All Bitcoin transactions are recorded on the blockchain, and anyone in the world can publicly verify the ledger without relying on any centralized institution. This attribute theoretically greatly reduces the risk of "discrepancy between the accounts and the physical" and greatly enhances the efficiency and transparency of clearing and settlement.

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

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

Initially, Bitcoin was spontaneously adopted by a group of crypto 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. Some countries designated Bitcoin as legal tender, while others 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.

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 is no longer entirely dependent on the "approval" of nations or institutions, but rather on whether there are enough users and market consensus.

3. Realistic Limitations and Critique

Although Bitcoin is revolutionary in theory and technology, it still has many limitations in practical applications:

• High price volatility: The price of Bitcoin is easily influenced by 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, a long confirmation time, and the proof-of-work mechanism consumes a large amount of energy.
• Sovereign resistance and regulatory risks: Some countries adopt a passive or even repressive attitude towards Bitcoin, leading to a fragmentation of the global market.
• Unequal distribution of wealth and technical barriers: Early Bitcoin users and a small number of large holders control a significant amount of Bitcoin, resulting in a high concentration of wealth. In addition, ordinary users need to overcome certain technical barriers to participate, making them vulnerable to risks such as fraud and losing private keys.

4. Similarities and Differences Between Bitcoin and Gold: A Thought Experiment as Future Value Anchors

1. Historical Leap in Transaction Efficiency and Transparency

In the era of gold as a value anchor, international bulk gold transactions often require the use of planes, 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, a certain country's central bank once announced that it would repatriate its gold reserves from overseas, and the entire plan took years to complete.

Moreover, the global gold reserve system suffers from serious issues of accounting opacity and difficulty in inventory. 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 cost between countries is 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, and anyone in the world can verify it in real-time and publicly. Whether it's individuals, businesses, or nations, as long as they have the private key, they can allocate funds at any time without physical transfer or third-party intermediaries, with global settlement taking only a few minutes. This unprecedented transparency and verifiability provide Bitcoin with an efficiency and trust foundation for large-scale settlement and value anchoring that gold cannot match.

2. The "role layering" concept of value anchors

Although Bitcoin far surpasses 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, one can envision the following structure for the future currency system:

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

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

5. Possible Evolution of Future Currency Systems and Critical Thinking

1. Multi-level, 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, undertaking roles of "high-level currency" such as 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, payments, and pricing.
• Local currency: The local currency of each country continues to assume the functions of regulating and managing the local economy, achieving tax, social welfare, and economic policy objectives.

Under this multi-layered structure, the three main functions of currency (medium of exchange, unit of account, store of value) will be more clearly divided among different coins and levels, and the global economy's risk diversification and innovation capacity 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 characteristics of Bitcoin be eroded by mining power oligarchs, protocol governance loopholes, or technological advancements? Global regulatory discrepancies, policy conflicts, and "black swan" events may all become unstable factors in the future monetary system.

In addition, sovereign countries may restrict the expansion of Bitcoin through strong regulation, taxation, technological blockade, and other means to protect their own interests. Whether Bitcoin can truly achieve global consensus and maintain its status as "digital gold" in a "bottom-up" approach still needs to be tested over 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 the "anchor" has been accompanied by profound changes 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 use.