The Technological Challenge That Bitcoin Might Solve

This is the final essay in our six-essay series exploring what might have happened had Nixon reinforced rather than abandoned the gold standard in 1971.

Throughout this series, we've examined how abandoning the gold standard has led to significant consequences for economic growth, government size, wealth distribution, financial markets, and military spending. A central insight from our roundtable revealed why the Nixon counterfactual may have been historically implausible - and yet why the principles of hard money may still prevail in our future.

In our roundtable, Lyn Alden explained how technology - particularly the telegraph - created a fundamental mismatch between transaction and settlement capabilities that ultimately doomed the gold standard:

"For thousands of years, transactions and settlements did not have that much of a speed difference... But it was the telegraph that just completely blew open the gap between transaction speeds and settlement speeds."

While information could move at the speed of light across telegraph wires, physical gold remained slow to transport, difficult to verify for quality, and required expensive security to move in large amounts. This growing gap required increasing reliance on centralized ledgers, creating both opportunity and temptation for those controlling these systems.

"That basically gives a gigantic honeypot to leaders," Alden noted. "It's kind of like putting the bag of potato chips next to every world leader."

This insight explains why the gold standard faced mounting pressure long before Nixon's decision. As Alden provocatively suggested, "If we were to run this period of human history like a hundred times, I think in 90 plus or even maybe a hundred of those times, you would have ended up in a similar kind of fiat period."

Source: Lyn Alden, “Broken Money” pg 88. Easy to spot the turning points as fiat was loosened away from the gold standard, and then what occurred when it was removed entirely in 1971.

Bitcoin: Closing the Settlement Gap

The technological perspective reveals a fascinating possibility: if technological change made the abandonment of gold nearly inevitable, a new technology might restore the principles of hard money in our digital age.

As Alden explained: "The reason I emphasize Bitcoin is that's kind of the first good attempt to close that gap."

Bitcoin potentially solves the core problem that undermined the gold standard: it combines hard money properties with fast settlement. For the first time, we have a monetary asset that offers both scarcity and speed.

The Path to Adoption

If Bitcoin solves the technical problems that undermined gold, will we see a return to hard money principles through its adoption? Our panelists offered nuanced perspectives.

Troy Cross highlighted a significant challenge: "Governments can collect taxes in a money of their choosing... So they can guarantee demand for their money at some level." This tax-driven demand creates a powerful incentive for citizens to hold government currency regardless of its monetary properties.

Bob Murphy suggested that formal adoption by major governments is unlikely: "I don't predict it will happen. I think that you're going to see formal and informal defaults." Instead, he envisions smaller groups adopting Bitcoin as a way to "opt out of that system."

Lyn Alden sees potential for a gradual, bottom-up shift that might eventually include major currencies, though she cautions this would be "a very long grind in a similar way that network effects take a very long time to shift."

The transition might begin with individuals in high-inflation countries, expand through remittances and international settlements, and gradually develop into broader usage for transactions. As adoption grows, governments might shift from resistance to accommodation.

Market Discipline Through Competition

An important question emerges: Will governments face market discipline if Bitcoin becomes a viable competitor? As Alden explained: "If we kind of picture... a Bitcoin world exists, Bitcoin got really big... Any country that comes along and says, 'hey, do you want to buy our fiat currency or our fiat bonds?' they're not going to have a big appetite."

Alden also highlighted a historical pattern that might predict Bitcoin's future: "The general technological approach was that whenever cultures would come together, the one with the harder money could make more of those other ones money, but the reverse wasn't true." When hard money meets softer money, hard money wins. If Bitcoin achieves sufficient scale, this historical pattern suggests it could eventually exert significant pressure on softer currencies.

For example, Alden points out in Hard Money that gold’s hard money characteristics were sounder than silver’s, and gold eventually won out.

Source: Alden, Broken Money pg 41. Footnote- Silvan Frank, “Gold to Silver Ratio.”

This dynamic could impose market discipline even without formal adoption of a new standard. The mere existence of a viable alternative creates a constraint on fiat excess. If citizens have genuine alternatives to hold value, governments face stronger incentives for monetary discipline.

Conclusion: The Path Forward

Our roundtable conversation explored a counterfactual that, while historically implausible, illuminates profound truths about our monetary system. The evidence cited by our panelists suggested that abandoning the gold standard has had profound consequences—enabling unconstrained government growth, facilitating a shift from productive to financial capitalism, concentrating wealth through non-productive means, distorting price signals, and enabling military expansions that might otherwise have faced greater scrutiny.

While maintaining a gold standard was extremely unlikely due to technological limitations, the fiat monetary system that replaced it appears fraught with the temptations of human nature and the political incentives that make sound money difficult to sustain. The rise of Bitcoin represents a potential hard money replacement for gold that addresses the technological constraints that doomed the gold standard.

The principles that the gold standard embodied—stable money, fiscal discipline, and honest price signals—remain as important to individuals today as they were when money connected to gold was a more reliable store of wealth.

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