The Evolution of Currency Anchors and the Rise of Bitcoin

Introduction

Currency is one of the most profound and widely accepted inventions in the course of human civilization. From barter to metallic currency, from the gold standard to sovereign credit currency, the evolution of currency has always accompanied changes in trust mechanisms, transaction efficiency, and power structures. Today, the global currency system is facing unprecedented challenges: excessive currency issuance, a crisis of trust, worsening sovereign debt, and geopolitical shocks caused by the hegemony of the US dollar.

The emergence of Bitcoin and its continuously expanding influence forces us to rethink: what is the essence of currency? In what form will the "value anchor" of the future exist?

The revolutionary aspect of Bitcoin lies not only in its technology and algorithms but also in its nature as the first "bottom-up" monetary system driven spontaneously by users in human history, challenging the millennium-old 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, consider the possibility of Bitcoin as a future value anchor, and look ahead to the potential 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, commodities 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 entering a civilized society, gold and silver, due to their natural properties of scarcity, ease of division, and difficulty of alteration, have become the most representative general equivalents. Ancient empires used metal currency as a symbol of national power and social wealth.

By the 19th century, the gold standard was established globally, linking the currencies of various countries to gold and achieving standardization in international trade and settlement. The greatest advantage of this system was the clear "anchor" for currency and low trust costs between countries, but it also resulted in currency supply being limited by gold reserves, making it difficult to support the expansion of industrialization and 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 US dollar, forming a "dollar standard." In 1971, the Nixon administration unilaterally announced the decoupling of the US dollar from gold, marking the official entry of global sovereign currencies into the era of fiat currency, where countries issue currency based on their own credit and regulate the economy through debt expansion and monetary policy.

Fiat currency has brought great flexibility and room for economic growth, but it has also sown the seeds of trust crises, hyperinflation, and excessive currency issuance. Third world countries repeatedly fall into local currency crises, and even some emerging economies are struggling amid debt crises and foreign exchange turmoil.

2. The Real Dilemma of the Gold Reserve System

1. Concentration 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 following World War II, but it has also led to significant concentration and opacity issues.

For example, Germany previously announced that it would repatriate part of its gold reserves from the United States, one reason being distrust of the U.S. Treasury's accounts and the long-standing failure to conduct on-site audits. It is difficult for outsiders to verify whether the treasury accounts match the actual gold reserves. In addition, 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 has the attributes of a circulating currency (M0). Individuals and businesses cannot directly settle daily transactions with gold, 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 settlement usually involves complex clearing processes, long time delays, and high security costs. Moreover, the transparency of inter-central bank gold transactions is extremely low, and account audits rely on the trust endorsement of centralized institutions. This makes the role of gold as a global "value anchor" increasingly symbolic rather than a reflection of actual circulation value.

3. The Economic Innovations and Real Limitations of Bitcoin

1. Bitcoin's "algorithmic anchoring" and monetary properties

Since its birth in 2009, Bitcoin's characteristics of a fixed total supply, decentralization, and transparency have sparked a new round of thinking globally about "digital gold." The supply rules of Bitcoin are encoded in an algorithm, with a total cap of 21 million coins that cannot be altered by anyone. This "algorithmically anchored" scarcity is similar to the physical scarcity of gold, but it is even more thorough and transparent in the age 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 "discrepancies between the ledger and the physical assets" and significantly enhances the efficiency and transparency of clearing and settlement.

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

Bitcoin fundamentally differs from traditional currency: traditional currency is issued and promoted "top-down" by state power, while Bitcoin is adopted voluntarily "bottom-up" by users and gradually spreads to businesses, financial institutions, and even sovereign nations.

Users first, institutions later: Bitcoin was initially adopted spontaneously by a group of crypto enthusiasts and libertarians. As network effects strengthen, prices rise, and application scenarios expand, more and more individuals, businesses, and even financial institutions begin to hold Bitcoin assets.

Passive adaptation by countries: Some countries have designated Bitcoin as legal tender, while others have 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.

Global Borderless Expansion: The network effect of Bitcoin has transcended sovereign borders, with a large number of users in both developed countries and emerging markets voluntarily 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. Real-world limitations and criticism

Although Bitcoin is revolutionary in theory and technology, there are still many limitations in real-world applications:

• High price volatility: Bitcoin prices are highly susceptible to 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, long confirmation times, and the proof-of-work mechanism consumes a large amount of energy.
• Sovereign resistance and regulatory risks: Some countries have adopted negative or even repressive attitudes towards Bitcoin, leading to a fragmentation of the global market.
• Uneven wealth distribution and technical barriers: Early Bitcoin users and a small number of large holders control a significant amount of Bitcoin, resulting in highly concentrated wealth. In addition, ordinary users face certain technical barriers to participation, making them vulnerable to risks such as fraud and loss of private keys.

4. Similarities and Differences between Bitcoin and Gold: A Thought Experiment on Future Value Anchors

1. The Historical Leap of Transaction Efficiency and Transparency

In the era of gold as a value anchor, large-scale international gold transactions often require the use of airplanes, ships, armored vehicles, and other means for physical transfer, which not only takes several days or even weeks but also incurs high transportation and insurance costs. For example, the German central bank once announced the repatriation of its gold reserves from abroad, and the entire plan took years to complete.

More critically, the global gold reserve system suffers from severe accounting opacity and counting difficulties. The ownership, storage location, and actual existence status of gold reserves often rely solely on the unilateral declarations of centralized institutions. In this 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, allowing anyone in the world to verify it in real-time and publicly. Whether individuals, businesses, or nations, as long as they possess the private key, they can allocate funds at any time without physical transfer and without the need for a third-party intermediary; global transactions are completed in just a few minutes. This unprecedented level of transparency and verifiability gives Bitcoin an efficiency and trust foundation in large-scale settlements and value anchoring that gold cannot match.

2. The "role layering" concept of value anchors

Although Bitcoin far exceeds gold in terms of transparency and transfer efficiency, it still faces many limitations in daily payments and small circulation—issues such as transaction speed, fees, and price volatility make it difficult to become "cash" or M0 in reality.

However, referencing the monetary hierarchy theory such as M0/M1/M2, one can envision the following structure of the future monetary system:

• Bitcoin and other "anchor assets" serve as a value store and large settlement tools at the M1+ level, similar to the status of gold in central bank assets, but more transparent and easier to clear.
• Stablecoins based on Bitcoin, layer two networks (such as the Lightning Network), sovereign digital currencies (CBDC), etc., are responsible for daily payments, micropayments, and retail settlement functions. These "sub-coins" are anchored to Bitcoin or issued backed by it, 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, much like gold.

This layered structure can leverage the scarcity and transparency of Bitcoin as a global "value anchor," while also utilizing technological innovations to meet the convenience and low-cost needs of daily payments.

5. Possible Evolution of Future Currency Systems and Critical Thinking

1. Multi-level, multi-role currency structure

The future monetary system is likely to no longer be dominated by a single sovereign currency, but rather coexist with three layers of "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, taking on the role of "high-level currency" for cross-border settlement, central bank reserves, and value hedging.
• Payment mediums: stablecoins, sovereign digital currencies, Lightning Network, etc., anchored to Bitcoin or sovereign currencies, enabling daily circulation, payments, and pricing.
• Local currency: The local currency of each country continues to play the role of regulating and managing the local economy, achieving tax, social welfare, and economic policy objectives.

Under this multi-layered structure, the three major functions of currency (medium of exchange, measure of value, store of value) will be more clearly divided among different coins and levels, and the global economy's risk diversification and innovative 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? Regulatory divergences, policy conflicts, and "black swan" events on a global scale could all become unstable factors for the future monetary system.

In addition, sovereign nations may restrict the expansion of Bitcoin through stringent regulations, taxation, and technological blockades to protect their own interests. Whether Bitcoin can truly achieve global consensus and maintain its status as "digital gold" in a "bottom-up" manner still requires the test of time.

Conclusion and Open Questions

Looking back at the evolution of currency, from barter to the gold standard, and then to fiat currency, each replacement of "anchor objects" has been accompanied by profound changes in trust mechanisms and social organization. The emergence of Bitcoin has, for the first time, moved the "value anchor" away from physical resources.