What Is Money? A Look at Gold, Fiat, and Bitcoin

Money is something we often take for granted, but have you ever stopped to ask: What is money? It’s a question that seems to have an obvious answer, but most people rarely consider it. Understanding the answer is key to making informed financial decisions. When you know what makes a good form of money, you can better decide how to utilize your money effectively.
In today’s world, we rely on fiat currency (like the US dollar) to buy things, make investments, and even plan for our family’s future. But is fiat the best form of money? History shows that gold once played a key role as money for thousands of years, and now, Bitcoin has emerged as a modern-day, potential alternative financial system. To get to the bottom of it, we’ll compare these three forms of money—fiat, gold, and Bitcoin—based on the ideal attributes of money.

The Ideal Attributes of Money
​
For money to function well in a society, it needs to meet several key attributes. These include portability, divisibility, fungibility, durability, and scarcity. Let’s break these down and see how gold, fiat, and Bitcoin stack up.

Portability

Money should be easy to transport from one place to another. Gold, historically valuable as it is, fails here. It’s heavy, cumbersome, and expensive to move, especially in large amounts. Because of that, gold breaks down as money in a global economy much larger and more complex than a local, small community. Fiat, on the other hand, has the advantage of being digital—whether in the form of a credit card or a number in your online banking account. But even with digital dollars, you can run into issues transporting your money. Transactions can be blocked or frozen by banks or governments, limiting your freedom to move your money as you desire.
Bitcoin, however, excels in portability. Being entirely digital and decentralized, you can send Bitcoin anywhere in the world in minutes without the need for approval from a third party. That level of freedom is unmatched.

Divisibility

Divisibility refers to how easily money can be broken down into smaller units. Gold, again, is problematic. If you’re trying to buy groceries with a bar of gold, good luck dividing it into exact amounts without the necessary knowledge and tools to melt it down and reform it to the amount you need. Not to mention, none of us would want to wait in line behind someone doing this. Fiat currencies, like the dollar, fare better—you can use cents for small transactions. But Bitcoin takes divisibility to the next level, being divisible down to eight decimal places (the smallest unit being a “satoshi”), allowing for precise, micro-level transactions at scale. This is how Bitcoin would be able to operate as money in a global economy despite the limited supply cap of 21 million.

Fungibility

Fungibility means that every unit of money is the same as another. One ounce of gold is the same as any other ounce of gold. The same goes for a dollar. Bitcoin generally holds up well in this category, but because its transactions are recorded on a public ledger, there is a risk of “tainted” coins—those associated with illicit activities—being treated differently. Nonetheless, in practical terms, one Bitcoin is still one Bitcoin.

Durability

Durability is crucial for money. Gold shines here, literally and figuratively. It doesn’t corrode, rust, or break down over time, which is one reason it’s been valued for thousands of years. Fiat money, on the other hand, especially physical cash, doesn’t hold up nearly as well. Paper bills wear out, and digital dollars are backed only by the faith in the government. Therefore, fiat money is only as durable as the institution backing it and anyone who knows history knows that every civilization has eventually fallen. Bitcoin, being digital, is highly durable—as long as the Bitcoin network remains secure, your Bitcoin will last indefinitely.

Scarcity

Scarcity is arguably the most important trait of a good form of money. Gold is scarce because there is a limited supply of it in the earth. Fiat money, however, has no limit. Governments can print as much as they like, which leads to inflation, devaluation, or loss of purchasing power. Bitcoin, by contrast, is absolutely scarce. The only asset to ever achieve that quality. There will only ever be 21 million Bitcoin in existence, making it more finite than gold and certainly more reliable than fiat in preserving value over time.

What’s the Better Money?

So, what is money, really? It’s a way to store and communicate value. When you compare the attributes of fiat, gold, and Bitcoin, the answer becomes clearer. Gold’s history as a form of money shows its strengths, but its weaknesses in portability and divisibility make it impractical in today’s world. Fiat currencies have convenience but are plagued by inflation and a lack of scarcity. Bitcoin offers a blend of portability, divisibility, durability, and absolute scarcity that positions it as the best form of money for preserving your purchasing power and freedom in a modern economy.

Interested in our guidance?

As Bitcoin financial planners, we have taken an honest look at our financial system and clearly recognize the flaws unlike most other financial professionals. We are blending traditional, comprehensive financial planning with deep bitcoin expertise to provide our clients with the best of both worlds. We are the financial planners for bitcoiners, because we’re bitcoiners ourselves and understand how to navigate anything thrown at you over the next 50 years, so that your family is set up for success. Schedule a call today to see if we would be a good fit to work together.
​