Bitcoin: A New Digital Gold Standard in the 21st Century?


Dr. John Taskinsoy a

ABSTRACT

Since a mysterious creator under the alias Satoshi Nakamoto (a pseudonym) launched first successful
cryptocurrency in January 2009, he (or could be she) also opened the door for never-ending criticism,
claims, arguments, plethora of articles, and media frenzy all contemplating what Bitcoin is. This paper
concludes that Bitcoin is not a currency to be used for every-day transactions like all fiat currencies.
Furthermore, Bitcoin is not a stable cryptocurrency and it is useless (and impractical) of arguing how
Bitcoin meets or fails basic functions of money; to make it clear, Bitcoin satisfies all three functions of
money (not to the extent of fiat currencies, nonetheless it does); store of value, unit of account, and
medium of exchange. As discussed in this article, our proposal of Bitcoin as a supranational central
bank reserve currency not only will put an end to debates and the frequently asked old question of
“what is Bitcoin?”, it will also make Bitcoin’s design flaws disappear instantly. Under the new Bitcoin
standard (Gold 2.0), inefficiencies become trivial because Bitcoin is capable of easily handling the
volume of operations among central banks. Bitcoin’s extensively discussed weaknesses become no
issue; high latency (a block of transactions is validated every 10 minutes), low processing speed (3-7
transactions per second), huge power cost (mining of 1 bitcoin requires 1,825 kWh of electricity,
equivalent to 63 days of power usage by a U.S. household), and low scalability (the maximum number
of bitcoins is fixed at 21 million). Key elements of the proposed new Bitcoin Standard include: Bitcoin
will be a supranational reserve currency used by central banks only; ownership, trade, and other uses
of bitcoins by citizens and various entities will be prohibited; the fixed supply of bitcoins (21 million)
will remain unchanged; every country’s financial authority will switch to central bank digital coins
(CBDC); CBDCs will be defined in bitcoin by a corresponding exchange rate for each country; 100%
of CBDCs will be 100% backed by bitcoins; any increase in the digital money supply by a central bank
will require additional bitcoins; and the value of each bitcoin will be raised to a price level to cover
100% of the total money in circulation (approximately $75 trillion).

Keywords: Cryptocurrencies; Bitcoin; Digital Gold; Blockchain; Electronic Cash; Gold 2.0
JEL classification: D14, D91, E42, G11, G12, G23, G28, O33


This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
a Corresponding author email address: johntaskinsoy@gmail.com
Faculty of Economics & Business – Universiti Malaysia Sarawak (Unimas), 94300 Kota Samarahan, Sarawak, Malaysia.

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1.0 Introduction

For millennia, gold has fascinated the humankind; throughout history, people from all cultures have
become increasingly obsessed with this precious metal that is highly malleable in its natural form,
does not corrode, rust, or get degraded by air, moisture, or acidic conditions. There is a new “digital
gold” called Bitcoin; despite gold’s unblemished record for storing value (i.e. passed $2,000 in 2020),
Bitcoin (as an asset, security, or commodity) has shattered gold’s recorded price history (see Figures
1 and 2), which has risen from price of $0.00 at its launch (2009) to $64,863 in April 2021.

Source Investing News1

Figure 1: Bitcoin price movements (2010-2021)

Source: https://www.buybitcoinworldwide.com/price/
Figure 2: Gold price movements (2010-2020)

1 https://investingnews.com/daily/resource-investing/precious-metals-investing/gold-investing/highest-price-for-gold/
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To gain an understanding why Bitcoin is referred to “Gold 2.0”, a brief history would be informative.
Ever since humans came in contact with gold in ancient Egypt circa 3000 B.C.2 (Roosevelt, 2009), this
precious metal has drawn people to its glare in all cultures across the globe; nonetheless, it was never
used as a medium of exchange in trade until last King Croesus3 of Lydia (i.e. present Western Turkey)
ordered minting of gold around 6th century B.C. to show his unmatched power and wealth (Pedley,
1972; for money’s evolution, see Davies, 2002). Having possession of more gold than others often
meant wealth and power in many ancient civilizations including Incas, Aztecs, Roman, Persian, Greek,
Mayan, Egyptian, and Mesopotamian; moreover, gold was used as a symbol to separate emperors as
well as the members of royal family and high-ranked religious figures (priests) from the general
public, and the rich from the poor. Gold was even metaphorically linked to Gods, i.e. ancient Greek
lyric poet Pindar in 5th B.C. described gold as “a child of Zeus, neither moth nor rust devoureth it, but
the mind of man is devoured by this supreme possession” (Bernstein, 2000).

Gold is not an infinite commodity; on the contrary, the amount of gold discovered thus far4 is 251,000
metric tons5 according to World Gold Council (see Figure 3), 80% of that (i.e. 198,000 tons) has been
mined throughout history. Strikingly, two-thirds of above ground gold stocks (130 tons) has been
extracted since 1950. All the gold that has been mined to date can fit a cube of 21 meters on each side
and is worth $12.54 trillion based on the current gold price of $1,800/ounce (September 10, 2021).

Source: World Gold Council, https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold

Figure 3: Total above ground stocks of gold mined throughout history

2 Archaeological evidence found in Paleolithic caves shows that humans interacted with gold thousands of years earlier than
Egyptians as the recorded history has indicated (for a historical perspective, see Davies (2002)).
3 Around 600 B.C., coins made of electrum were minted by the King Alyattes of Lydia – present Western Turkey (electrum

is a mixture of silver and gold that exists naturally in the nature). Alyattes, the fourth king of the Mermnad dynasty in Lydia
(the son of Sadyattes and grandson of Ardys), was succeeded by his son Croesus.
4 For intriguing facts about gold, visit https://www.gold.org/about-gold/gold-facts
5 1 metric ton = 1000 kg or US 2,204.6 pounds (1 ton = 907.18474 kg).

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Scientists claim6 that planetary collisions brought gold and other precious metals to Earth; since there
is no such event in the foreseeable future, the remaining discovered gold reserves below ground (i.e.
54,000 metric tons) can be mined in a span of 20 years based on current global gold mining of 2,500-
3,000 tons per annum, most of which is produced by the top ten gold-mining countries (Table 1).

Table 1: Top 10 gold mining countries

Country Gold Produced (tons) Gold Reserves (tons)

China 404 2,000

Australia 319 9,800
Russia 297 5,300
United States 222 3,000
Canada 189 2,200
Peru 158 2,600
Indonesia 137 2,500
Ghana 130 1,000
South Africa 130 6,600
Mexico 115 1,400

Source: Engineer Live, https://www.engineerlive.com/content/how-much-gold-world

Central banks have been net buyers of gold since the 2008 global financial crisis (GFC); especially
with COVID-19 pandemic and amplified geopolitical risks (i.e. US-China trade war), gold purchases
increased significantly in 2018 (656 tons) and peaked in 2019 (668 tons) before dropping by 60% to
273 tons in 2020 (Figure 4), Turkey was the largest buyer of gold in both 2018 and 2019 (Figure 5).

Source: Nasdaq, https://www.nasdaq.com/articles/top-10-countries-with-largest-gold-reserves-2021-05-02

Figure 4: Gold purchases by central banks

6 For origin of gold, see https://www.rt.com/business/422022-gold-origins-discovered-space/

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 Source: World Gold Council
Figure 5: Top gold purchaser/seller countries

Although China, Australia, and Russia are the three largest gold producers (Table 1), the U.S. Federal
Reserve (the Fed) has more gold reserves than any central bank in the world (Figure 6)

Source: Statista, https://www.statista.com/statistics/267998/countries-with-the-largest-gold-reserves/

Figure 6: Countries with largest gold reserves

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Gold also makes up the largest portion of the Fed’s total foreign reserves (see Table 2); similarly,
many G7 nations such as Germany, Italy, and France possess large gold stocks but their holdings have
hardly changed as these countries see no need to buy more gold to hedge against inflation or market
volatility. Attractiveness of the U.S. dollar has been unyielding for decades due to economic, financial,
and currency crises, debt burden and default risk continues’ elongated addiction to the dollar, and a
constant inventory of geopolitical risks (i.e. war games, abuse of sanctions power, political pressures,
and United States’ use of the dollar as a weapon of mass economic destruction). In recent years, China,
Russia, and Turkey have been accumulating massive amounts of gold reserves (i.e. modern gold rush)
to hedge against the dollar’s disruptive power (i.e. “exorbitant privilege”).

Table 2: Country rankings by gold reserves

Total Reserves Gold Reserves Value of Gold Gold Portion in

Rank Country
($million) (metric tons) Reserves ($million) Reserves (%)

1. United States 656,523.54 8,133.46 512,876.19 78.12

2. Germany 282,687.75 3,359.12 211,817.93 74.93
3. Italy 224,817.59 2,451.84 154,607.06 68.77
4. France 236,752.06 2,436.32 153,628.41 64.89
5. Russian Federation 657,631.89 2,292.31 144,547.49 21.98
6. China 3,634,783.73 1,948.31 122,855.69 3.38
7. Switzerland 1,207,732.41 1,040.00 65,579.87 5.43
8. Japan 1,528,504.58 845.97 53,344.81 3.49
9. Turkey 153,366.17 712.38 44,920.95 29.29
10. India 684,787.65 703.71 44,374.24 6.48
11. Netherland 57,538.16 612.45 38,619.61 67.12
12. Taiwan (POC) 631,514.89 423.63 26,713.08 4.23
13. Kazakhstan 39,063.31 385.94 24,336.44 62.30
14. Saudi Arabia 515,747.09 323.07 20,372.01 3.95
15. United Kingdom 186,344.10 310.29 19,566.13 10.50
16. Spain 89,995.22 286.58 18,071.04 20.08
17. Lebanon 41,835.00 281.83 17,771.51 42.48
18. Thailand 273,952.67 244.16 15,396.14 5.62
19. Belgium 35,318.45 227.40 14,339.29 40.60
20. Poland 177,364.68 231.77 14,614.85 8.24

Source: https://www.gold.org/goldhub/data/monthly-central-bank-statistics
Notes: Gold price (September 12, 2021) = $1,787.65/ounce; 1 metric ton of gold = 35,274 ounces of gold

1.1 Gold Facts7

o Gold has a natural golden (or yellowish) color, other metals can turn into grades of yellow after
oxidization or through application of chemicals.
o Scientists claim that all the gold was brought to earth by planetary collisions during the “big bang”
as the universe was formed over 13 billion years ago and from meteorites.

7 https://www.thoughtco.com/interesting-gold-facts-607641

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o Gold’s element symbol “Au” comes from the Latin name for gold “aurum” which means “shining
dawn” or “glow of sunrise” and “yellow/green” in Germanic languages.
o Gold is a conductor of heat and extremely ductile. A single ounce of gold (28.3495 grams; 1 troy
ounce = 31.1035 grams) can be stretched into a gold thread 5 miles (8 kilometers) long.
o Gold is a very malleable metal, it can be easily hammered into extremely thin sheets; for instance,
a single ounce of gold can be beaten into a 300-square-foot transparent sheet.
o Despite heavy and dense nature of gold, gold flakes can be consumed in foods and drinks.
o Pure gold is 24 karats, lower-karat gold is less pure and can consist of metals such as platinum,
zinc, copper, palladium, nickel, iron, and cadmium; as such, 18-karat gold is 75 percent pure gold,
14-karat gold is 58.5 percent pure gold, and 10-karat gold is 41.7 percent pure gold.
o Gold does not corrode, rust, or get degraded by air, moisture, or acidic conditions. While most
metals are dissolved by acids, a special mixture of acids called aqua regia can only dissolve gold.
o Pure gold is an unreactive metal, therefore it is both odorless and tasteless.
o Gold boils at 2808 and melts at 1064 degrees centigrade. If all of the existing gold in the world
was pulled into a 5 micron thick wire, it could wrap around the world 11.2 million times.8
o Since the beginning of civilizations, around 187,200 tons of gold has been mined (about 54,000
tons remain to be mined; current production rate is 2,500-3,000 tons/year.
o The South African gold rush began when Australian miner George Harrison found gold ore near
Johannesburg in 1885 (the California Gold Rush began earlier on January 24, 1848).
o All of the gold ever mined would fit into a crate of 21 meters cubed; nearly half of all gold mined
is made into jewelry, other uses of gold include hedging (safe heaven), finances and investing,
dentistry and medicine, aerospace, electronics, and social recognition.
o Since 1848 (California gold rush), over 90 per cent of the world’s gold has been mined; remaining
gold below ground and in waters (i.e. lakes, seas, oceans, etc.) may be mined before 2050.
o Gold is often alloyed with other metals to change its color and strength. Eighteen karat gold is
composed of 750 parts of pure gold per 1,000; in other words, 75 percent of pure gold.
o The largest gold coin ever created was cast by the Perth Mint in 2012, 80 cm in diameter and
weighed one ton (i.e. the previous record, a 2007, $1 million coin which was just 53 cm across).
o The largest ever true gold nugget weighed 2,316 troy ounces was found at Moliagul in Australia
in 1869, which was called the “Welcome Stranger”.
o A London standard unit of traded gold is made from 400 troy ounces of gold (12,441.8 grams).
o The US Federal Reserve holds 8,134 tons of gold, in 643,436 gold bars. At its peak in 1973 (Arab-
Israeli Yom Kippur War and oil shock), the Fed stored over 12,000 tons of monetary gold.

8 This and facts below are extracted from https://www.gold.org/about-gold/gold-facts

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1.1 The International Silver Standard (1453 – 1873)

Before silver and gold, there was barter – a system of exchange of goods for other goods without the
involvement of any medium with monetary value. Advantages of a barter system (i.e. no money, no
inflation, no frictional costs, and certainly no situations of unemployment, underemployment and
overemployment) have become central problems of monetary-based economies; as such, massive
capital accumulation through labor-intensive production for exchange and profit; overexpansion of
credit and the resultant debt hangover (excessive indebtedness by private sector and households);
and consumers being constantly bombarded with advertisements to spend more and more. There are
no billionaires under the barter system either because concentration of wealth in the hands of a small
group of people would be impossible (see Cellarius, 2000; Chapman, 1980; IRTA, 2009; Kaikati, 1976;
Lithen, 2002). This all sounds good but the barter system had some disadvantages, i.e. indivisibility
(impossible to divide and subdivide a live cow), difficulty of finding the exact match, double
coincidence of wants, no unit of account and store of value, not competition, and no growth
prospects for economies. According to monetarists Friedman (1967), Friedman & Schwartz
(1963) and Bernanke (2005), supply of money underpinned by right monetary policies is at
the center of economic growth which was achieved under both silver and gold standards.

The use of various commodities (Figure 7) to facilitate exchange in trade can be traced to as far back
as the Bronze Age (3300 B.C.), but the frontrunner of them was silver which satisfied basic functions
of money (i.e. store of value, unit of account, and medium of exchange). Silver was standardized under
the Sumerians of Mesopotamia (i.e. silver shekel was a standard unit around 3000 B.C). For millennia,
silver was more widely used in domestic and regional economies than gold, nevertheless silver only
became the basis of a monetary system in the 16th century Europe and Americas. International silver
standard emerged in the 16th century with the discovery of large deposits of silver at the Cerro Rico
in Potosí, Bolivia; under which, a fixed weight9 of silver was used (Cipolla, 1976; Davies, 2002).

Through a monetary reform in 1497, the Spanish Empire introduced the Spanish silver dollar, also
referred to as the Spanish pieces of eight (Pond, 1941). Furthermore, in Joachimsthal – present Czech
Republic, silver coins under the name of Joachimsthaler (in short, thaler) were minted in 1519. During
1600-1850, the English word “dollar” (derived from the German word “thaler”) was used in minted
coins both in central Europe and Americas (e.g. Newman, 1990). Between 1650 and 1776, pound’s
dominance increased with 2 million people living in Britain’s 13 original North American colonies,

9 The silver thaler had a fixed weight of 29.2 grams while the U.S. silver dollar weighed 27.0 grams. US Morgan Dollar was
designed by George T. Morgan (1878-1921) contained 90% Silver - 10% copper, and weighed 26.73 gram.

8
majority of whom were brought as slaves from Africa. However, severe shortages of British coinage
in North America forced its 13 colonies to use substitutes including privately issued paper money.

Source: Author; https://satoshispeaks.com/the-history-and-evolution-of-money/

Figure 7: Five waves of currency evolution

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For thousands of years (since 2500-3000 B.C.), silver was the real basis of both domestic and regional
economies. In the 14th century Europe, England led silver’s standardization and its use as a unit of
account and medium of exchange for everyday economic activities (i.e. English currency was almost
exclusively silver until 1344), where even wages and salaries were paid with silver (i.e. a craftsman
earned six pence weighing 5.4 grams of silver).10 Widespread circulation of silver dollars marked the
birth of the silver standard that lasted about four hundred years (fall of the Byzantine Empire – 1453
to the Gold Rush in California – 1848, see Gordon & Morales, 2017). Chronic shortages of British coins
in North America prompted few of Britain’s original 13 colonies to issue paper money during 1723-
1760. However, large quantities of bank notes caused hyperinflation and forced the Great Britain to
enforce a ban in 1764 against issuance of paper money by its colonies. While the Revolution War
(1775-83) was in full swing, the Continental Congress authorized the issuance of bank notes in 1775
to finance the war (backed by Spanish silver dollar - the 8-real coin), and the following year on 4 July
1776 the U.S. declared independence from the Great Britain (Adams, 2008).

United States adopted the silver standard in 1785 (i.e. Spanish milled dollar was accepted as legal
tender) and immediately began minting silver coins with the establishment of its first Philadelphia
Mint in 1794 (the Coinage Act of 1792 chose US dollar as the standard unit of account for its national
currency). However, the minting operation only lasted 3 years (1794-97) due to severe shortages of
silver and gold, forcing the U.S. government once more to extend legal tender to Spanish silver dollar
for an indefinite period of time (for details, see Bernanke, 2004; Eichengreen, 2009); consequently,
in 1806 President Jefferson suspended the minting of silver coins. The Independent Treasury Act of
1846 allowed a bimetallic (silver and gold) standard in the U.S., plus the US Congress passed the
Coinage Act of 1857 to end legal tender to all foreign coins (Hudson, 1972; Zinn, 2014). By the early
1870s, the U.S. was unofficially on the gold standard as the Coinage Act of 1873 de-monetized silver,
but monometallic (only gold) standard lasted only five years till silver certificates of 1878 were issued
to co-exist with gold certificates already in circulation (Bordo & Schwartz, 1984; Cassel, 1936).

1.2 The International Gold Standard (1870s-1920s)

Unlike other metals (i.e. iron and steel, found in ore-bodies and pose difficulty of smelting), gold is
found in its natural state and easily workable (great malleability) in spite of its unique density (only
metals in the platinum group is as heavy). Since the human race (i.e. early hominids) came in contact
with gold for the first time, this precious metal not only played a very important role in every ancient
society, but due to its natural beauty and dazzling look (referred to as “tears of the sun” by the Incas) 11,

10 See Wikipedia, https://en.wikipedia.org/wiki/Silver_standard

11 https://onlygold.com/facts-statistics/history-of-gold/

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it was linked to ancient gods, royalty, immortality, power, and wealth (the latter two still remain true
even today). Although gold has always had value to humans, it was never used as money12 in trade to
facilitate exchange until the last King of Lydia Croesus of Mermnadae (570 – 546 B.C.) ordered minting
of gold coins13, his wealth was so unmatched that the term “rich as Croesus” was coined (for more
details with a historical perspective, see Bernstein, 2000; Cooper, 1982; Cipolla, 1976; Cook, 1958;
Davies, 2002; Friedman, 1992; Graeber, 2001; Gordon & Morales, 2017; Pond, 1941).

In the 18th century, although most countries were still on a bimetallic standard (Spanish silver dollar
was still de facto medium of exchange and unit of account across Americas), a de facto gold standard
emerged in Great Britain in 1717 (i.e. earlier, a decree by Queen Anne in 1704 introduced the British
West Indies to the gold standard, but gold standard was established in 1821) thanks to a historical
error by then-master of the Royal Mint Sir Isaac Newton who set the ratio of silver to gold too low,
this in turn caused silver coins to go out of circulation. Before the United States emerged as the world’s
leading financial and manufacturing power in the late 19th century, Great Britain had this role putting
pressure on its colonies and other nations to follow suit14. Germany became gold rich after its victory
in the Franco-Prussian War (1870-71), a hefty indemnity of £200,000,000 in gold from France gave
Germany the opportunity to adopt the gold standard in 1873 (gold mark was introduced in place of
the silver thaler coins), this put further pressure on the U.S. to move on the gold standard (1873).

1.3 The International Dollar Standard (1920s-present)

As Great Britain went on the gold standard (1821), the US Congress rushed to enact the Coinage Act
of 1834 to fix the value of an ounce of gold at $20.67 dollars ($1 dollar equaled to 0.048338 oz of gold
or 1.37 grams). The U.S. raised the silver-to-gold weight ratio from its 1792 level of 15:1 to 16:1 thus
setting the mint price below its international market price.15 United States’ demonetization of silver
to embrace the gold standard in 1873 marked the inauguration of the dollar system of fixed exchange
rates where only value of the US dollar was linked to one ounce of gold ($20.67 and later $35) and
other countries’ currencies were fixed in terms of the dollar (for longer discussions with a historical
perspective, see Bernanke, 2004; Bogart, 1930; Cecco, 1984; Eichengreen, 2009; 2011; Eichengreen
& Flandreau, 2009; Friedman & Schwartz, 1963). Dollar’s increasing hegemonic status as the world’s
main reserve currency was further solidified by the 1944Bretton Woods Conference (Figure 8).

12 The literature on gold also cites that gold was used as money in ancient Greece and Egypt around 1320 B.C.
13 Archaeological evidence found in Paleolithic caves shows that humans interacted with gold thousands of years earlier
than Egyptians as the recorded history has indicated (for a historical perspective, see Davies, 2002).
14 By 1900, countries were on gold standard, Canada (1854), Germany (1873), US (1873), France (1878), and Japan (1895).
15 Gresham's law, named after English financier Sir Thomas Gresham, is a monetary principle stating that "bad money drives

out good". A steady decline in the value of silver drove gold out of circulation.

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 Source: Author; http://bmg-group.com/irreversible-trends-driving-gold-10000/
Figure 8: Global reserve currencies since 1450

The classical gold standard was rather brief, nonetheless the period 1873-1913 is still remembered
as four decades of halcyon days in terms of economic growth and stability (Bordo & Schwartz, 1984),
in part contributed by world peace, unrestricted (or minimal restrictions) flow of goods and capital
(i.e. borderless), and favorable macroeconomic conditions. The gold standard was interrupted by the
onset of WWI and was succeeded by an interim gold exchange standard (1919-31) under which, only
Great Britain and United States as reserve countries held gold, other nations based on reserve needs
accumulated gold, dollars or pounds. Against this background, some countries passed sterilization
policies to protect their national currencies and money supplies from gold flows (see Kindleberger,
1986; Drummond, 1987; Hamilton, 1987). Due to unfavorable macroeconomic conditions (1920-33),
the gold exchange standard was also brief, forcing the major powers one after another to abandon
gold; as such, Germany went off gold in 1914, Great Britain in 1931 (due to repeated speculative
attacks on British pound), and the United States in 1933 (due to the Great Depression of 1930s).

After the conclusion of WWI (1918) and temporary stability, the Fed’s contractionary (tight-money)
monetary policy stance in early 1920s coupled with the U.S. stock market crash of 1929 and the Great
Depression of the 1930s hit financial markets worldwide like a massive tsunami that the world had
never experienced before, and this by many aspects was the most severe16 crisis in the history of

16 Between 1929 and 1933, about 2,000 banks failed annually (about 9,000 banks); nominal gross national product (GNP)
fell nearly 50% whereas the real output fell over 25%; wholesale and consumer prices plummeted, over 30% and 25%
respectively; unemployment skyrocketed over 20% (fell below 10% only after WWII); and real interest rate nearly tripled
(jumped from little over 4% to 11.50%). For further discussion, see Friedman and Schwartz (1963); Wheelock (1998).

12
humankind (see Bernanke, 1983; Bernanke & James, 1991; Hamilton, 1987; Hall & Ferguson, 1998;
Meltzer, 1976; Temin, 1976; Wheelock, 1998). Economists along with historians point a finger at
numerous causal effects such as the death of Benjamin Strong in 1928 (head of the New York Federal
Reserve Bank)17, the US stock market crash of 1929 (Black Tuesday), beggar-thy-neighbor18 policies
(Eichengreen & Irwin, 2010), the U.S. Smoot-Hawley tariff of 1930 (e.g. Irwin, 1998), the collapse of
international trade (Eichengreen & Irwin, 1995), banking panic and crashes (Kindleberger, 1978,
1986), a lack of gold reserves at the Fed (Epstein & Ferguson, 1984), Great Britain’s decision in 1931
to leave the gold standard (Cooper, 1982), and finally the Glass-Steagall Act19 (Banking Act of 1933)
which barred U.S. commercial banks from investment banking activities (see Crawford, 2011;
Lardner, 2009; Mester, 1996). The dollar was devalued in 1934 as a defense by President Roosevelt
to turn the economic tide, the value of dollar to gold changed from $20.67/oz to $35/oz.

The post-WWII economic order agreed at the 1944 Bretton Woods Conference not only replaced both
the gold standard (1873-1913) and the gold exchange standard (1919-1929), but the dollar’s role as
an international reserve currency was instated (Bordo, 1993; Bordo et al., 2017; Dooley et al., 2004;
Garber, 1993). The Bretton Woods system was designed with an American view 20 in mind, but Keynes
had doubts about the system’s ability to solve problems of the interwar period as well as those from
the Great Depression epoch in the 1930s. As the global trade volume increased substantially after the
conclusion of WWII, previously put in place beggar the neighbor policies, trade zones, and currency
blocks impeded trade growth, prompting countries to sign bilateral free trade agreements (FTA) to
reduce or eradicate trade barriers21,22 (Eichengreen & Irwin, 2010). The dollar’s ascendancy to the
throne was assured by President Nixon’s decision in 1971 to cut the dollar’s link to gold.

While dollar has been enjoying its prolonged “exorbitant privilege”, there have been many attempts
to kill off, deflate, or end the dollar’s increasingly damaging hegemonic position. Despite the fact that
euro replaced several major currencies in Europe (i.e. Deutsch mark,), euro’s slightly higher than 20%
share of foreign reserves only had a minor dent on the dollar’s dominance (see Figure 9). Even with

17 Although the New York Federal Reserve Bank had no prior authority granted by the federal government, Benjamin Strong
allowed the bank to engage in the open market bond operations to keep the money supply stable despite volatility in gold
inflows and outflows. This meant bending the rules of banking rules which was not legal.
18 Countries passed protectionist policies to resolve their own economic problems at the expense of other nations.
19 As a reactionary response to drafted by Senator Carter Glass and Representative Henry Steagall
20 American view (in the lead of the U.S.) referred to the view of wartime allies (the Axis power), Keynes described it as “a

single power or like-minded group of powers.” Out of forty-four countries formally represented at Bretton Woods, there
seemed to be two powers, but after negotiations and compromises by the UK, only one mattered, U.S. was the winner.
21 Some of the barriers include but not limited to tariffs, quotas, sanctions, subsidies, embargos, regulations, etc.
22 Free trade became increasingly popular in the late 20 th century thanks to; European Union lifted barriers domestically

(1992); the North American Free Trade Agreement (NAFTA) took effect in January 1, 1994; the GATT became the World
Trade Organization (WTO) in 1994; most favored nation (MFN) trading status took effect in 1995 among WTO member
countries; in 2002, Economic Community (EC) became the Economic and Monetary Union (EMU).

13
the rise of the Chinese economy (the world’s largest in terms of purchasing power – PPP), yuan’s
(renminbi) impact was trivial even though the Chinese yuan became a reserve currency in 2016 when
the IMF added yuan to the SDR23 basket of reserves (Subacchi, 2010; Subramanian, 2011; Subacchi &
Driffill, 2010). Regardless, U.S. dollar continues to rule both international trade and foreign exchange
market; circa 90% of daily forex trading volume is in dollars (Figure 10).

Source: Author; IMF: http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4

Figure 9: USD share of allocated global official reserves

Source: Author
Figure 10: 10 most daily traded currencies in 2018

23 Special drawing rights (SDR) are supplementary foreign exchange reserve assets of the International Monetary Fund

14
1.4 The Birth of Bitcoin

Bitcoin is not a standard, but it could have been if governments and central banks (particularly the
Fed and the ECB) have not insisted on getting on the Bitcoin-bashing bandwagon, i.e. to remind people
of the American primacy and dollar’s hegemony, former U.S. President Trump tweeted “We have only
one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the
most dominant currency anywhere in the world, and it will always stay that way. It is called the United
States Dollar!”24 Nonetheless, there were supporters of money’s evolution into digital form; namely,
Christine Lagarde, former Managing Director of the IMF, urged central banks not to ignore “winds of
change” and consider looking into the case of central bank digital currency (Lagarde, 2018).

In the Wealth of Nations, Scottish philosopher Adam Smith characterized barter as primitive (Smith,
1776; also see Dalton, 1967), he advocated that both inefficiencies and negative reciprocity of barter
were a precursor to money which, throughout history, has appeared in various forms such as metallic,
paper, plastic, digital, and now crypto (since January 2009). Every now and then (especially following
a high-magnitude financial crisis), the topic of hotly debated gold standard reemerges; however, most
economists argue that tying currency to either silver or gold had serious issues of addressing not only
complex activities of the modern business but its inability to handle substantially growing transaction
volumes (Astrow, 2012; Bernstein, 2000; Bordo, 1993; Bordo & Schwartz, 1984; Cassel, 1936; Cooper,
1982). Except four decades of economic growth and financial stability (from 1870s to WWI in 1914),
the gold standard provided more disadvantages than advantages; as such, more rigid money supply
did not keep pace with growing demands for money; tying currency to gold did not eliminate risks of
inflation and recession; countries with rich unmined gold reserves (Australia, Russia, and South
Africa) and the biggest gold producers (China and Russia) had a competitive advantage.

The global financial crisis (GFC) of 2008 with farfetched implications, originated in the U.S. and spread
globally, provided a perfect ground for the mysterious creator Satoshi Nakamoto (a pseudonym) to
launch25 Bitcoin in January 2009 as a decentralized purely peer-to-peer cryptocurrency26 (Nakamoto,
2008); however, the inception of Bitcoin should not be taken entirely as a direct consequence of the
credit crisis because previous attempts to create electronic cash actually began in the 1980s and
accelerated in the 1990s with the advent of the Internet and e-commerce (Duffie, 2019; Dwyer, 2014).

24 He tweeted (3:15 AM – Jul 12, 2019); https://www.foxbusiness.com/markets/bitcoin-price-tumbles-trumps-criticism

25 Satoshi Nakamoto (a pseudonym, his identity is unknown) supposedly worked about two years for writing the codes of
Bitcoin. Once writing of codes was completed, he registered the domain name bitcoin.org on 18 August 2008 and
published his White Paper on 31 October 2008, “Bitcoin: A peer-to-peer Electronic Cash System”. Next, he kicked off Bitcoin
project on November 9, 2008. On January 3, 2009, he created the genesis block (first block); a week later on January 9,
2009, Bitcoin v0.1 was released. As a symbolic first Bitcoin peer-to-peer transaction took place on January 12, 2009 when
Satoshi sent 10 BTC to a computer programmer by the name of Hal Finley (see Nakamoto, 2008).
26 Also referred to as electronic money, digital money, digital cash, digital coin, virtual money, and digital currency.

15
The most common trait between Bitcoin and gold is that the price of each asset is not set by a de facto
central bank; unlike fiat currencies, their values are determined by trust, acceptance, supply, and a
degree of speculation. Just like gold, the price of each bitcoin can be anything in its eco system as long
as people are willing to pay for it. It was previously mentioned that all of the gold since the universe
was formed (i.e. roughly 250,000 metric tons) ever mined would fit into a crate of 21 meters cubed;
interestingly, Nakamoto fixed the maximum number of bitcoins at 21 million (currently 18,822,943
bitcoins are in circulation27); on the contrary, there is no limit to how much gold can be discovered
and mined (i.e. large discoveries of gold deposits can lead to inflation and monetary imbalances). Over
a century prior to Bitcoin’s launch (January 2009), the price of gold was $523.15 oz in April 1915
(Figure 11); nearly a century later, while gold was trading around $813 oz, Bitcoin was introduced at
practically $0.00 in 2009. During over a decade, the alpha coin has set inconceivable price records, i.e.
peaked at $64,863 in April 2021 before a major price correction, currently at $43,831.

Source: Author; https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Figure 11: Historical gold prices (1915-2021)
Notes: The price of gold per ounce (oz) was $523.15 in April 1915; $269.43 in June 1920; $718.45 in March 1934;
$253.32 in October 1970; $962.76 in March 1974 (Yom Kippur War in 1973 – oil shock); $2,379 in January 1980
(augmented macroeconomic risks); $425.91 in December 2000; $2,199 in August 2011; $1,239 in December 2015;
$2,069 in August 2020 (increased geopolitical risks, US-China trade war, and the novel COVID-19 pandemic).

27 CoinMarketCap, https://coinmarketcap.com/

16
Bitcoin advocates and investors strongly infer that Bitcoin in fact is “Gold 2.0”. If both regulatory and
political backlash to Bitcoin is alleviated or stopped altogether, Bitcoin can be, as its creator originally
stated, “electronic cash” version of the gold standard. A Bitcoin-based monetary system, i.e. digital
gold standard, should not be compared with the gold standard that collapsed in the early 20 th century
because the antecedent had serious problems (i.e. scalability, cost, efficiency and effectiveness) for
supporting and fueling the global economy to expand. Notwithstanding some inherent weaknesses,
Bitcoin has a great potential to become a digital gold standard that the future needs;

o Bitcoin satisfies basic functions of money such as store of value, unit of account, and medium of
exchange; although Bitcoin is associated with extreme volatility, it has increased its value since
its debut more than any asset (stocks or bonds), commodity, or other investment instruments.
o Just like gold’s scarcity aspect (finite mineable quantity), Satoshi Nakamoto fixed the quantity of
Bitcoin at 21 million and each bitcoin can only enter circulation through a mining process.
o Same as any national fiat currency (i.e. dollar), bitcoin is divisible (eight decimals) and its smallest
denomination is called a Satoshi (i.e. 0.00000001 BTC).
o Bitcoin is not as old as gold as an economic agent (i.e. 5000 years – since 2500 B.C.), nonetheless
bitcoin (BTC) as an electronic cash can outlast gold and any fiat currency if the existing regulatory
hurdle that curtails a wider acceptance of cryptocurrencies is completely removed.
o Similar to gold, Bitcoin is highly liquid (a possession of any amount of bitcoin can be cashed out
within seconds) and very secure (the decentralized – permissionless network of electronic cash
runs on blockchain as its infrastructure technology using a distributed ledger and cryptography),
which removes a third-party intermediation and is not controlled by a de facto central authority.
These traits and more poise the scalable Bitcoin as a reliable and longer-lasting economic agent.
o Gold only became the basis of a monetary system over 4,000 years after humans first came in
contact with it (circa 2500 B.C.); conversely, not even two decades have passed since Bitcoin’s
debut in January 2009, a growing number of economists, scholars, academia, practitioners, media,
and industry participants have been discussing the possibility of Bitcoin as “Gold 2.0” a new digital
gold standard; this is a true testimony to the fact that that Bitcoin is ready and capable of assuming
the role of supporting the global economy that the Gold 1.0 failed to do so.
o Bitcoin is always criticized on two aspects; first is its extreme volatility, it is true that Bitcoin is
highly volatile (not a stable coin), but erratic price fluctuations are not entirely due to the inherent
characteristics of Bitcoin; on the contrary, large price swings are in part caused by governments,
central banks, law makers, and regulators running headlong into backlash to Bitcoin and altcoins.
Second is Bitcoin’s alleged association with some illicit activities which can be tightly monitored
and deterred by putting in place proper laws and regulations.

17
1.5 Bitcoin Technical Perspective

Nakamoto (2008) created Bitcoin as a purely Peer-to-Peer Electronic Cash System, runs on blockchain
and relies on cryptography. Bitcoin, a mineable cryptocurrency, is divisible by eight decimals and the
smallest denomination is called a Satoshi (i.e. 0.00000001 BTC). In his white paper (available online:
https://bitcoin.org/bitcoin.pdf), Nakamoto explains a mining process (minting bitcoins) as a solution
to the double-spend problem. This aspect of bitcoin (i.e. for a free-floating cryptocurrency) meets the
scarcity element that is essential to create real value (i.e. gold). Unlike gold, Bitcoin has no intrinsic
value, no physical form (only exists digitally), and no de facto Fed-like central authority (stateless) to
set its value. According to Franco (2014), special knowledge28 is essential to gain an understanding
of at least three key elements about Bitcoin such as software (cryptography and distributed ledger),
hardware (computer network), and the underlying infrastructure technology (i.e. blockchain).

Source: Nakamoto (2008)

Figure 12: The overview of bitcoin protocol

Satoshi Nakamoto designed his Bitcoin blockchain as a decentralized, permissionless (open source),
trustless (no trusted third-party intermediation), purely peer-to-peer network to send, receive, or
use bitcoins to spay for products/services purchased online. Hashing is a process by putting a specific
input (SHA-256) to generate a specific output using an algorithm (Figure 12); a miner’s objective is
to add a “nonce” that will generate an output to satisfy the threshold set by the Bitcoin protocol. The

28 Before sending and receiving bitcoins, the following three things are needed; (i) sender’s own public key (an alphanumeric

string), (ii) sender’s own private key (i.e., password linked to the address), and (iii) the recipient’s public address.

18
concept of “mining” by ways of solving a problem such as double spending is not an arcane concept
(Dwork & Naor, 1993; Back, 2002); further, e-commerce on the Internet with the use of cryptographic
payment systems is much older (Wenninger, 2000). As shown in Figure 12, Bitcoin uses a timestamp
server and publishes the hash, which proves the data (i.e. transaction) existed (for a fuller discussion,
see Bayer et al., 1993; Haber & Stornetta, 1991, 1997; Massias et al., 1999). This proof-of-work system
used by Bitcoin’s blockchain is a lot similar to Adam Back's Hashcash (Back, 2002).

Transactions under the Bitcoin blockchain protocol follow some steps (Figure 13); to send, receive or
use bitcoins to purchase online, a set of private and public keys are used; an owner (sender) digitally
signs a hash of the previous transaction and public key of the next owner - receiver (e.g. Nakamoto,
2008; Merkle, 1980). Bitcoin blockchain offers key advantages; anonymity (identity/personal data
are kept anonymous); self-sovereignty (users manage own data); transparency (distributed ledger
stores and publishes every data); immutability (all records are kept permanently, which cannot be
changed, modified or canceled); disintermediation (all transactions are executed in the trust-less
environment); and collaboration (users conduct transactions without a third-party intermediation).

Source: Adapted from Nakamoto (2008)

Figure 13: Schematic overview of bitcoin transactions

o All records relate to minting, buying, selling, and transferring bitcoins are stored and published
by its distributed public ledger; therefore, the entire data (full nodes) on permissionless Bitcoin
blockchain is accessible by miners (nodes) globally. Bitcoin, a huge network of trustless machines
(miners/nodes), is resistant to attacks and can’t be controlled by governments or central banks.

19
o With the absence of trusted third-part intermediators, miners (nodes) validate all transactions
based on proof-of-work (PoW) and ensure safekeeping of the blockchain ledger. To incentivize
miners to validate transactions and induce competition among them, Nakamoto created a reward
scheme that pays miners (validators) for every successfully completed block of transactions. As
illustrated in Figure 14, the block reward was set at 50 bitcoins (BTC) and has been halved for
every 210,000 validated blocks (roughly, once every four years); currently at 6.25 BTC.

Source: https://www.investopedia.com/terms/b/bitcoin-mining.asp
Figure 14: Bitcoin incentive proof-of-work scheme

o Miners also make money from transaction fees, which were practically set to zero at the time of
Bitcoin’s debut in January 2009; over a decade later, with the price of each bitcoin over $56,600,
the validation fees of transactions now make up a larger portion of the incentive scheme.
o As mentioned many times previously, Bitcoin blockchain is a decentralized peer-to-peer network
of nodes (trustless machines); based on their functions, nodes are divided into three main groups
such as miners who mint new bitcoins to enter circulation; light nodes that validate transactions
without using too much computational power and resources; and full nodes that keep the entire
copy of the blockchain, from the Genesis Block (first block Nakamoto created) to the most recent.

20
o Miners solve the double-spending problem based on proof-of-work consensus protocol, and in
return, randomly selected winner (miner) is awarded the set block reward (i.e. 6.25 BTC after the
May 2020 halving) plus corresponding transaction fees. A block is completed roughly every 10
minutes, meaning a miner gets a reward of bitcoins in every 10 minutes; miners with larger
computational powers have better chances of winning the rewards.
o In every 10 minutes, a new race (competition) begins for solving the double-spending puzzle; to
do that, confirmed and unconfirmed transactions along with the block header from the previous
block are hashed into a new block using SHA-256 algorithm. Miners guessing the right nonce (a
number) are able to generate an output below the target output threshold. Then the block solution
is broadcast to all nodes, if miners (51% or more) reach a consensus on the solution, this as a new
block is added to the blockchain and the block reward goes to its successful owner.
o Each Bitcoin block consists of key information which is limited to one megabyte of data29: a block
header contains version number, hash of the previous block header, hash (67-digit hexadecimal
number) of the root of Merkle tree of all the transactions, timestamp, difficulty (output threshold),
and nonce; each transaction data contains version number, both transaction inputs and outputs,
lock time, flag for SegWit transactions, and witnesses for SegWit transactions (Figure 15).
o New bitcoins can only be minted (mined) and enter circulation through a digital mining process
based on solving a cryptographic double-spending problem. The distributed ledger stores and
publishes all transactions that become immediately (at all times) visible to miners (nodes).
o Finding the correct hash is easier said than done30, i.e. guessing the right 67-digit number (below
the threshold target) among possibilities of all 67-digit numbers is about 45,000 times more
difficult than winning the lottery jackpot with a single ticket. Furthermore, the difficulty level gets
adjusted (i.e. easier or harder depending on the number of miners in the network) every two
weeks (or after a completion of 2,016 blocks, whichever comes first).
o It takes roughly 10 minutes for nodes to verify a block of transactions (i.e. could be one transaction
or several thousand); with Bitcoin’s current transaction processing rate (4-7 per second), it would
take about 216 hours for the Bitcoin blockchain (5 transactions per second is used) to verify the
number of transactions that Visa can process per second (i.e. 65,000 transactions).
o Cryptographic hashing improves Bitcoin blockchain’s immutability and resistance to attacks 31,
which has four unique properties; 1. Deterministic (always same output); 2. Fast (output of the
hash function is computed fast); 3. Unique (no two same inputs are used to generate an output);
and 4. Irreversible (both inputs and outputs can’t be altered, canceled, or deleted).

29 https://www.gemini.com/cryptopedia/how-does-bitcoin-work-blockchain-halving
30 https://www.investopedia.com/terms/b/bitcoin-mining.aspJULIUS MANSA
31 https://www.freecodecamp.org/news/how-bitcoin-mining-really-works-38563ec38c87/

21
Source: Nakamoto (2008)
Figure 15: Bitcoin blockchain protocol

22
2.0 Literature Review

Although the international gold standard32 achieved price level and exchange rate stability between
1834 and the breakout of World War I (1914), nevertheless it still failed to prevent numerous banking
panic and financial crises from occurring33 (Table 3) - 8 of 12 were U.S. origin, two were in the UK, the
panic of 1907 involved several countries, and the “Great Financial Crisis” of 1914 engulfed economies
of many countries (for “Eight Centuries of Financial folly”, see Reinhart & Rogoff, 2009a, b). Differently
than the classical gold standard (1800s-1913), the imagined Bitcoin (aka digital gold) standard in this
paper will not be based on an anchor fiduciary currency (i.e. US dollar – USD); as the influential British
economist John Maynard Keynes strongly suggested at the 1944 Bretton Woods Conference 34 (i.e. a
“supranational” global reserve currency he called “bancor”, see Keynes, 1943; Sweezy, 1946), Bitcoin
will be stateless (no government) and will not be controlled by a Fed-like de facto central bank. Under
this new digital gold standard, no physical central bank issued national currency will exist; states will
have their own central bank digital currencies (CBDC), each of which including dollar, euro, yen, yuan,
etc. will be tied to Bitcoin by an exchange rate, i.e. $1 = 0.000023934 BTC. But more importantly,
Bitcoin as a supranational global reserve currency will only be used by central banks. 35

Table 3: Banking crises in countries on gold standard

Years on gold Number of Years on gold Number of
Country Country
standard banking crises standard banking crises
Austria-Hungary 18 0 Italy 20 2
Argentina 17 0 Netherlands 34 1
Belgium 34 0 Norway 34 1
Brazil 9 0 Portugal 11 1
Canada 34 0 Russia 17 0
Denmark 34 2 Sweden 34 2
France 34 2 Switzerland 34 0
Germany 34 2 United Kingdom 34 1
Greece 4 0 United States 34 3

Source: Weber (2015); Reinhart and Rogoff (2009a, b);

32 Also referred to as “Classical Gold Standard” (1873-1913).

33 Wikipedia, https://en.wikipedia.org/wiki/Financial_crisis; panic of 1819 (US recession with bank failures); panic of 1825
(British recession with bank failures); panic of 1837 (US economic recession with bank failures); panic of 1847 (collapse
of British financial markets); panic of 1857 (US economic recession with bank failures); panic of 1866 (primarily British);
gold Panic of 1869 (Black Friday); panic of 1873 (US recession with bank failures); panic of 1884 (failures of New York
banks); panic of 1890 (British Baring Crisis); panic of 1893 (US railroad crisis); Australian banking crisis of 1893; panic
of 1896 (US economic depression resulted from a drop in silver reserves); panic of 1901 (crashing of the New York Stock
Exchange); panic of 1907 (US recession with bank failures); panic of 1910–1911; the Great Financial Crisis of 1914.
34 44 Delegates from the wartime allies rejected Keynes’ UK plan of the “Clearing Union” and a new reserve currency called

“bancor”; instead, the same delegates unanimously accepted Harry Dexter White’s U.S. plan which was designed with the
American view in mind. But Keynes had doubts about the system’s ability to solve problems of the interwar period and
those from the Great Depression of the 1930s which ultimately led to the breakout of World War II.
35 For a longer perspective and detailed discussions on this topic and other related topics, interested readers can check out

a long list of articles published by the author, Taskinsoy (2012; 2013; 2018; 2019; 2020; 2021). The views expressed in
this paper are those of the author and do not necessarily reflect the views of institutions mentioned.

23
To this date, categorization of Bitcoin has been a hotly debated topic; for instance in the U.S. alone, for
tax purpose the Internal Revenue Service (IRS) has classified Bitcoin as a property, the Securities and
Exchange Commission (SEC) has categorized cryptocurrencies as securities, and the Commodities
Futures Trading Commission (CFTC) has recognized Bitcoin as a commodity (see Table 4).

Table 4: Cryptocurrency regulations in US, EU, and Japan

Country Crypto-friendly norms Regulations on illicit use of cryptocurrencies

U.S. accepted Bitcoin in 2013 and classified it a
commodity in 2015, but cryptocurrencies are not
considered legal tender but exchanges are legal in
the United States under the regulatory scope of the
US Bank Secrecy Act (BSA). However, cryptocurrency
exchanges are regulated differently by states,
nonetheless they must obtain a license from the
Financial Crimes Enforcement Network - FinCEN
which considers them money transmitters.
US Securities and Exchange Commission (SEC)
considers cryptocurrencies as securities, the same
securities laws apply to digital wallets. On the
other hand, the Commodities Futures Trading
Commission (CFTC) has recognized Bitcoin and
Ethereum as commodities. Under the guidelines
published by FATF in June 2019, FinCEN expects
crypto exchanges to comply with record-keeping
requirements and the AML and CFT laws.

Unlike the U.S., cryptocurrencies are legal across
the EU, but regulations and taxation may vary by
member-states. Cryptocurrency exchanges must
comply with European Banking Authority (EBA),
European Commission (EC), European Central
Bank (ECB), European Insurance & Pension
(EIOPA), and European Supervisory Authority for
EU Securities (ESMA). In 2015, the EU Court of Justice
ruled that cryptocurrencies should be exempt from
value-added tax (VAT). In January 2020, EU’s 5th
Anti-Money Laundering Directive (5AMLD) came
into effect. In December 2020, 6AMLD came into
effect, making cryptocurrency compliance more
stringent (cybercrime added).
Cryptocurrencies are legal across the EU and are
classified as qualified financial instruments
(QFI’s). Exchanges are regulated at a regional level
under QFI licenses; in certain EU states, they have
registration requirements with their respective
regulators, i.e. France’s Autorité des Marchés
Financiers (AMF), Germany’s Financial
Supervisory Authority (BaFin), Italy’s Ministry of
Finance. Authorizations and licenses granted by
these regulators can be passport exchanges,
allowing them to operate under a single regime
across the entire bloc. Following 5AMLD and
6AMLD, cryptocurrency exchanges are liable for
money laundering offences to legal persons as
well as individuals (i.e. greater oversight).

Japan currently has the world’s most progressive
regulatory climate; Bitcoin and other coins are
recognized as legal property under the Payment
Services Act (PSA). Following those regulations,
crypto exchanges in Japan are required to be
registered and comply with traditional AML and
CFT rules. The National Tax Agency ruled that
Japan gains on cryptocurrencies are taxed. The recent
regulations include amendments to the PSA and
FIEA effective in May 2020, which place greater
restrictions on cryptocurrency custody service
providers that fall under the scope of the PSA while
cryptocurrency derivatives businesses fall under
the scope of the FIEA.
Under the PSA, only businesses with a competent
local Financial Bureau are allowed to operate as a
cryptocurrency exchange; foreign cryptocurrency
exchanges are permitted to register where they
can comply with equivalent registration standard
in their host country. Due to a series of high profile
hacks, crypto regulations have become an urgent
national concern, therefore the Financial Services
Agency (FSA) has stepped up efforts to regulate
trading and exchanges: amendments to the PSA
require cryptocurrency exchanges to register and
comply with cybersecurity and AML/CFT laws. In
2016 and 2019, another amendment updated this
requirement to include checking customer ID and
to cover custodian services providers.

Source: Mondaq36; Comply Advantage37

36 https://www.mondaq.com/india/fin-tech/1044546/global-cryptocurrency-regulatory-landscape
37 https://complyadvantage.com/blog/cryptocurrency-regulations-around-world/

24
The purpose of this paper is to introduce a new digital gold standard (Bitcoin), compare and contrast
our imagined Bitcoin standard with the classical gold standard to determine its effectiveness in price
stability, exchange rate stability, real output growth, and financial/economic crises. Notwithstanding
gold’s intrinsic value, tangible and intangible attributes, and superior metallic characteristics, Bitcoin
is trusted and accepted by millions; while gold has never exceeded a price of $3,000/oz during its
existence for several millennia, Bitcoin on the other hand has passed a price of $64,000 with a market
capitalization of $1.1 trillion, from $1.5 billion in Aug 2013 to $1.1 trillion in April 2021 (Figure 16).

Source: Author; Statista; https://www.statista.com/statistics/377382/bitcoin-market-capitalization/

Figure 16: Market capitalization of Bitcoin (April 2013 to February 22, 2021)

Between August 2013 and September 2021, the number of active Bitcoin wallet users worldwide has
risen from a mere 1.5 million users in 2013 to mindboggling 76.62 million users as of September 13,
2021 (see Figure 17). Since 2018, Bitcoin wallet downloads have more than tripled due to amplified
geopolitical risks and the resultant political and economic instability; disruptive technologies, war on
terrorism, and global warming (climate change) at an alarming rate coupled with the latest upheaval
from the COVID-19 (the novel coronavirus) pandemic have caused the Bitcoin frenzy and initial coin
offerings (ICOs) to reach new heights – currently, a total of 12,191 cryptocurrencies 38 are traded in
414 exchanges across the world, this is an increase of six-fold from 2,070 coins in December 2018.

38 https://coinmarketcap.com/

25
 Source: Author; Statista; https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/
Figure 17: Number of Bitcoin blockchain wallet users worldwide

2.1 Bitcoin: Real Money, Commodity, Asset, or Security?

Satoshi Nakamoto, a pseudonymous creator, launched Bitcoin in January 2009, and since then, many
have asked the question, what is Bitcoin? Aside from wide ranging opinions, compelling arguments,
and heated discussions as to what Bitcoin is or should be (including this paper), Nakamoto designed
Bitcoin as a permissionless, decentralized and purely peer-to-peer network of electronic cash with no
intrinsic value. Bitcoin runs on blockchain using work-of-proof consensus protocol, distributed ledger
and cryptography technologies. Advocates argue that Bitcoin is a real currency because it satisfies the
basic functions of money, i.e. store of value (Bitcoin came into existence at $0.00 value, currently price
of each bitcoin is over $57,000 – peaked at $64,863 in April 2021), unit of account of the Bitcoin
payment system, and a medium of exchange (accepted by merchants globally, individuals and entities
can send, receive and transfer bitcoins, or pay for products/services purchased online without the
need of third-party intermediation). However, Bitcoin also possesses some flaws and limitations.

Until recently, no country in the world has passed a law making Bitcoin legal tender; El Salvador
President Nayib Bukele has done just that, the law he indorsed entered into force on September 7,
2021; furthermore, his office also publicly announced that the government will create the country’s
own Bitcoin wallet called Chivo (i.e. slang for “cool” in El Salvador).

26
United States accepted Bitcoin in 201339 and classified it a commodity in 2015; although exchanges
are legal in the U.S. under the regulatory scope of the Bank Secrecy Act (BSA), cryptocurrencies are
not considered legal tender and are regulated differently by states and government entities; as such,
US Securities and Exchange Commission (SEC) treats cryptocurrencies as securities; the Commodities
Futures Trading Commission (CFTC) has classified Bitcoin as a commodity; and for tax purposes, the
Internal Revenue Service (IRS) has categorized Bitcoin and other cryptocurrencies as a property.40
Bitcoin and altcoins (i.e. Ethereum) are considered legal across the EU and are classified as Qualified
Financial Instruments (QFI’s), which are regulated at a regional level under QFI licenses; in certain
EU states, they have registration requirements with their respective regulators. Japan has the world’s
most progressive regulatory climate recognizing cryptocurrencies as legal property; under Payment
Services Act (PSA), only businesses with a competent local Financial Bureau are allowed to operate
as a cryptocurrency exchange; foreign cryptocurrency exchanges are permitted to register where
they can comply with equivalent registration standards in their host countries.

Bitcoin41 as a cryptocurrency was an arcane topic even a few years after its launch; for instance, a
survey by Bloomberg (2013) revealed that less than half of those polled knew what Bitcoin was (6%
thought it was a video game);42 nevertheless, Bitcoin became a household name in less than a decade
(Wallace, 2011). Bitcoin’s mindboggling success (price valuations) and the propagation of altcoins
has made wishful folks believe that the dollar’s days are numbered and Bitcoin could become a viable
alternative to fiat currencies (Cermak, 2017). In its arduous journey for acceptance (e.g. Brill & Keene,
2014; Bouoiyour & Selmi, 2016; Sovbetov, 2018), Bitcoin has faced countless bumps and obstacles,
but it has survived all challenges, it is still with us and going stronger than ever before; in fact, the
current price of over $57,000 per bitcoin is a true testimony to its resilience. A chorus of economists,
scholars, and financial experts have examined Bitcoin’s great potential to become a reserve currency
(Blundell-Wignall, 2014; Yermack, 2013; David, 2014; Dwyer, 2014; Chance, 2014; Franco, 2014).

Many economists believe that, in theory, any fiat or crypto currency can be a contender to end dollar’s
hegemony; but this is easier said than done in practice, Raico (2018), Emmenegger (2015), Vermeiren
(2017), Seghezza and Morelli (2018) argue that this is a remote possibility. The influential British
economist John Maynard Keynes’ idea of a “supranational” reserve currency should not have to stay

39 It was concluded at the hearings held by the U.S. Senate Committee on Homeland Security and Governmental Affairs that
“Bitcoin had the potential to play useful roles in the commercial payment system.” For the actual hearing document, see
U.S. Senate Committee on Homeland Security and Governmental Affairs, Beyond Silk Road: Potential Risks, Threats, and
Promises of Virtual Currencies, Hearings held November 18-19, 2013, available at hsgac.senate.gov/hearings/beyond-
silk-road-potential-risks-threats-and-promises-of-virtual-currencies.
40 https://www.mondaq.com/india/fin-tech/1044546/global-cryptocurrency-regulatory-landscape
41 Bitcoin with a capital “B” refers to the electronic cash system; bitcoin with a lowercase “b” is the digital currency.
42 https://www.edelmanfinancialengines.com/education-center/articles/will-bitcoin-replace-the-dollar

27
as a heterogeneous dream; if not rejected at the 1944 Bretton Woods Conference, it would have
prevented the dollar from dominating both international trade and foreign reserves (Galbraith, 1975;
Keynes, 1943; Helpman, 1981; Schumacher, 1943). More than a decade has passed, and Bitcoin is still
subject to massive criticism and skepticism along with never-ending questions whether Bitcoin is real
money, crypto-currency or a speculative investment asset class (see Baek & Elbeck, 2015). Bitcoin’s
rejection as an electronic cash by blind-folded politicians (i.e. former US President Donald Trump),
narrow-minded central banks (the Fed and the ECB in particular) and egotistical law makers is not a
huge surprise; besides, the prevalence of fiat money we are so inseparable now had taken 300 years
to earn trust and acceptance (e.g. Cuthell, 2019); during which, fiduciary (fiat) currencies had faced
countless rejections and failures as people throughout history had a skeptic approach to the notion
of literally worthless piece of paper being used in trade as a medium of exchange (Hermele, 2014).

In the early days, Bitcoin’s association with web portals (i.e. Silk Road) known for illicit activities had
prompted governments around the world to call for a greater scrutiny of Bitcoin and other crypto-
currencies on terrorism-financing, money-laundering, illegal drugs and human trafficking (see Brill
& Keene, 2014Bonneau et al., 2015; Gudgeon et al., 2019; Christin, 2013). Backlash to Bitcoin was not
just common to the Trump administration (2016-20), here are criticisms by industry experts 43; JP
Morgan CEO Jamie Dimon said Bitcoin fits perfect illicit activities and “it is worse than tulip bulb”;
Jack Bogle (Vanguard founder) advised people to “avoid Bitcoin like a plague”; Andreas Treichi (Erste
Group Bank AG) argues that Bitcoin “will make central banks lose control”; Jim Kramer (CNBC) points
to great resemblance between Bitcoin and monopoly money; Tony Robbins (self-made millionaire)
feels Bitcoin is “very iffy” and “I look at that as it’s like going to Vegas” David Gledhill (CIO at DBS)
believes Bitcoin is a “Ponzi scheme”; Howard Marks (co-chairman of Oaktree Capital) called it “an
unfounded fad (or perhaps even a pyramid scheme)”; and Michael Novogratz (former Fortress hedge
fund manager) said that Bitcoin mania (bubble) is fueled by “a lot of froth and fraud”. According to
San Francisco Fed President John Williams, Bitcoin does not meet functions of money such as medium
of exchange, store of value, and unit of account (also see Kristoufek, 2015).

Not everything was negative; here are some leading experts’ positive opinions on Bitcoin44; Nikolay
Storonsky (Revolut CEO) asserts that cryptocurrencies, like most commodities (i.e. gold), are open to
a degree of speculation, which does not prevent them from having a market; Thomas Jordan (Swiss
National Bank Chairman) sees cryptocurrencies more “investment vehicles than a currency”; to Adam
White (Vice President Coinbase), Bitcoin’s erratic price volatility is not “a bad thing” and he adds that
Bitcoin will become “a really viable financial instrument for the world”.

43 https://coinpedia.org/information/experts-criticisms-bitcoin-cryptocurrencies/
44
https://coinpedia.org/news/experts-positive-opinions-bitcoin/

28
Today, cryptocurrencies are declared legal (as a commodity, property, asset, or security) across many
countries (Table 5); but unfortunately, they are still banned in countries like Algeria, Bolivia, Ecuador,
Bangladesh, Nepal, and Macedonia. This trend will change in coming years because cash’s reign of
several millennia is now facing the risk of extinction as a growing number of countries move towards
cashless societies. Interestingly, America is eliminating cash at a much slower speed than China and
counterparts in Europe (over 70% of Americans still use cash for some purchases), this in most part
is attributable to old barriers; for one thing, some U.S. states have banned cashless commerce in order
to protect low-income, unbanked and underbanked residents who have no access to the internet.

Table 5: Status of cryptocurrencies in countries

Key Developments Cryptocurrencies Declared as Legal

Japan legalized cryptocurrencies Morocco Iran Slovakia

and set up a Payment Services Act. Nigeria Lebanon Switzerland
Namibia Turkey** United Kingdom
US government accepted Bitcoin South Africa India* Australia
in 2013 and classified it as a Zimbabwe Pakistan New Zealand
commodity in 2015. Canada* Japan Ireland
Mexico Hong Kong Netherlands
Germany legalized Bitcoin and its United States Taiwan Belgium
citizens are allowed to trade and Costa Rica South Korea France
transact in this coin. Nicaragua Indonesia Luxembourg
Trinidad and Tobago Philippines Greece
France legalized the operation of Jamaica Cambodia Italy
virtual currencies in July 2014. Brazil Malaysia Bulgaria
Argentina Thailand* Bosnia and Herzegovina
Malta accepts Bitcoin and other Colombia Singapore Malta
cryptocurrencies as a legal mode Chile Vietnam** Spain
for digital transactions. Kyrgyzstan Croatia Portugal
Cyprus Germany Sweden
Canada legalized cryptocurrency Israel Poland Iceland
in August 2017. UAE Austria Norway
India Czech Republic Denmark
Belarus legalized cryptocurrency Jordan Romania Ukraine
in March 28, 2019. Saudi Arabia Slovenia

Source: Yahoo Finance45; Investopedia46; Wikipedia47

Notes: * banned by banks; ** not allowed as a payment tool
Following countries have banned cryptocurrencies: Algeria, Bolivia, Ecuador, Bangladesh, Nepal, Macedonia

With Bitcoin as a central bank reserve currency, not only the myths, old barriers and criticism will be
completely eliminated, but Bitcoin’s design flaws (i.e. high latency, low processing speed, huge power
cost, and low scalability) will not be an issue anymore. Prior to the launch of supranational Bitcoin
reserve currency, the entirety of bitcoins in circulation will be purchased by central banks and the
value of each bitcoin will be raised to a level to back all fiat currencies currently in circulation.

45 https://finance.yahoo.com/news/countries-banned-cryptocurrencies-why-210500613.html
46 https://www.investopedia.com/articles/forex/041515/countries-where-bitcoin-legal-illegal.asp
47 https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory

29
Source: Wikipedia, https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory#/media/File:Legal_status_of_bitcoin.svg
Figure 18: World map of Bitcoin status
Legal tender: El Salvador
Permissive (legal to use bitcoin): European Union and G7, Albania, Angola, Argentina, Austria, Australia, Bangladesh, Belgium, Belarus, Brazil, Brunei, Bulgaria, Cambodia,
Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, El Salvador, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary,
Iceland, India, Iran, Ireland, Italy, Jamaica, Japan, Jordon, Indonesia, Israel, Kyrgyzstan, Lebanon, Luxembourg, Malaysia, Malta, Mauritius, Mexico, New Zealand, Namibia,
Netherland, Nicaragua, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea,
Spain, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Trinidad and Tobago, Turkey, United Kingdom, United States, Uzbekistan, Venezuela, Vietnam, and Zimbabwe.
Contentious (some legal restrictions – banking ban): Bangladesh, Canada, China, Colombia, Cambodia, Ecuador, Indonesia, Iran, Jordon, Nigeria, Qatar, Russia, Saudi Arabia,
Taiwan, Turkey (prohibited as a payment tool), and Vietnam.
Contentious (interpretation of old laws, bitcoin is not illegal): Russia
Hostile (full or partial prohibition): Algeria, Bolivia, Egypt, Morocco, and Nepal.

30
2.2 Bitcoin Fundamentals

Size of the contagious Bitcoin frenzy and its fast expanding eco system (Figure 19) are often compared
with that of the gold rush48 in the mid-19th century and the dot.com phenomenon at the onset of the
21st century. However, the exponential growth in Bitcoin’s popularity in less than a decade has proved
that the excitement surrounding the Bitcoin phenomenon is warranted and definitely not a fluke as it
was the case in the dot.com boom-and-bust cycle that lasted only three years (1998-2001).

Source: Deloitte Center for Financial Services, Bitcoin: The new gold rush?
Figure 19: Number of Bitcoin blockchain wallet users worldwide

o Bitcoin (the alpha coin) as the first successful cryptocurrency (BTC) dominates the market with a
45.8% market share, its closest competitor Ethereum (ETH) has a market share of 18.5%. After
Bitcoin became a household name shortly after its debut in January 2009, the question of whether
it is a digital alternative to traditional (fiduciary) currencies has been hotly debated (Blundell-
Wignall, 2014). Bitcoin’s market cap has exceeded $1.1 trillion in April 2021 (Figure 16).

48 Bitcoin miners (nodes) today remind us the gold miners (gold diggers) during the gold rush (1849) in California who were
also called the 49ers (San Francisco’s American football team has the same name, i.e. San Francisco 49ers).

31
o Satoshi Nakamoto (2008) designed the Bitcoin protocol as a permissionless (a system of open
source), decentralized purely peer-to-peer network of electronic cash removing the need for a
trusted-third party, plus no Fed-like central authority backing Bitcoin or setting its price.
o On 3 January 2009, Satoshi Nakamoto created the genesis block (first block), a week later on 9
January 2009, Bitcoin v0.1 was released. A symbolic first peer-to-peer bitcoin transfer took place
on 12 January 2009 as Satoshi sent 10 BTC to a computer programmer Hal Finley. Onwards,
miners have received a reward in BTC for every block successfully added to the Bitcoin blockchain
(Houy, 2014; Kroll et al., 2013). The reward size began with 50 BTC per block in 2009 and halving
of the reward has occurred after 210,000 new blocks mined (roughly every four years). The first
halving was in 2012 (from 50 BTC to 25 BTC), the second was in 2016 (from 25 BTC to 12.5 BTC)
and the latest third halving took place on 11 May 2020 which reduced the reward from 12.5 BTC
to the current 6.25 BTC (Hayes, 2015). Between 2016 and 2019, about 150 bitcoins were mined
per hour, however almost half of the mined bitcoins are sold back to cover electricity expense 49.
In terms of boom-and-bust cycles of Bitcoin, this paper looks at three distinct periods (waves)
triggered mainly by the halving dates of block rewards paid as an incentive to miners (Table 6).

Table 6: Bitcoin halving (2012 – 2032)

Halving Date Block Block reward Mined in period % mined

BTC launch 3 January 2009 0 50 10,500,00 50

Halving 1 28 November 2012 210,000 25 5,250,000 75

Halving 2 9 July 2016 420,000 12.5 2,625,000 87.5

Halving 3 11 May 2020 630,000 6.25 1,312,500 93.75

Halving 4 Expected 2024 840,000 3.125 656,250 96.875

Halving 5 Expected 2028 1,050,000 1.5625 328,125 98.4375

Halving 6 Expected 2032 1,260,000 0.78125 164,062.5 99.21875

Source: CMC Markets, https://www.cmcmarkets.com/en/learn-cryptocurrencies/bitcoin-halving

o Bitcoin, a mineable digital coin, runs on blockchain (a distributed ledger technology – D LT) which
heavily relies on cryptography for its operation. Block-chain as the term implies has two parts,
blocks containing every bite of data and a chain linking blocks together. Blocks are like storage
units that store anything of value related to minting bitcoins via a mining process and keeps a
chronology of all transactions; a chain can be metaphorically viewed as a string holding all blocks
together, which are created using a consensus algorithm based on proof-of-work – PoW (Baek &
Elbeck, 2015; Bartos, 2015; Berentsen & Schär, 2018; Catalini et al., 2019; Chiu & Wong, 2014).

49 https://www.marketwatch.com/story/heres-how-much-it-costs-to-mine-a-single-bitcoin-in-your-country-2018-03-06

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 Table 7: Bitcoin boom and bust cycles

Events Halving 1 – First Wave Halving 2 – Second Wave Halving 3 – Third Wave

Halving November 28, 2012 July 9, 2016 May 11, 2020

$76 (July 9, 2013) $373 (February 9, 2016) $7,194 (January 1, 2020)

$311 (December 31, 2014) $963 (January 2, 2017) $29,376 (January 2, 2021)
Low price
$177 (January 15, 2015) $3,557 (January 14, 2018) $34,700 (May 24, 2021)

$3,931 (January 3, 2019) $29,807 (July 20, 2021)

$1,153 (December 5, 2013) $975 (December 29, 2016) $28,841 (Dec 31, 2020)
$755 (January 1, 2014) $19,118 (Dec 19, 2017) $63,523 (Feb 22, 2021)
High price
$651 (July 3, 2015) $17,527 (January 7, 2018)

$10,621 (Sep 4, 2019)

+1,417% (2013) +161.39% (2016) +300.90% (2021)

-58.8% (2014) +1,860.82% (2017) +116.24% (2021)
Increase/Decrease
-267.80% (2015) -392.75% (2018) -45.37% (2021)
+170.19% (2019)

Source: Author

o Repeated booms and busts (Table 7); after peaking at $64,863 on 14 April 2021, Bitcoin plunged
to $29,807 on 20 July, 2021 - an evaporation of over $600 billion in its market cap (from $1.18
trillion to $560 billion). Five months later, Bitcoin has risen back to $57,285 on October 12, 2021.
Large price movements are not a rare event in the Bitcoin echo system, but this too can end if this
paper’s proposal is accepted and Bitcoin starts a fresh page as a central bank reserve currency.
o The electric cost for mining one bitcoin varies significantly among countries; for example, the
highest in South Korea ($26,170) and lowest in Ukraine ($1,852), on average $6,191.
o As illustrated in Figure 19, Bitcoin mining uses circa 167.11 terawatt-hours (TWh) of electricity
annually, which equals to the power consumption of Poland and is more than many countries.
o The Bitcoin network produces one valid block in every 10 minutes on average which is validated
by its proof-of-work protocol. Bitcoin runs on an electricity-intensive network (Figure 19), mainly
powered by fossil fuels. The mining operation’s annual electronic waste generation (i.e. 272g per
transaction on average50) is becoming a major environmental concern (see Figure 20).
o Mining of a single bitcoin generates 868.18 kg CO2, which is equivalent to the carbon footprint of
1,924,191 visa transactions or watching 144,597 hours of videos on YouTube (Figure 21).

50 https://digiconomist.net/bitcoin-energy-consumption/

33
 Source: University of Cambridge Bitcoin Electricity Consumption Index51; slightly modified
Figure 20: Bitcoin uses more energy than Finland and Argentina

o Bitcoin blockchain is temper-proof (resistant to attacks by hackers and insiders), therefore highly
secure (Casey & Vigna, 2018). Proof-of-work (PoW) using cryptography allows easy tracking and
traceability. No data is hidden or disappears, full transparency makes transactions become visible
to all miners at all times. Bitcoin blockchain also provides immutability (products and documents
are authenticated), share-ability (distributed ledger eliminates database backups and prevents
loss of data since most nodes have a copy), and blocks are created and published via consensus
algorithm (Merkle, 1980; Risberg, 2018; Schoenmakers, 1998; Staples et al., 2017; Vishnumurthy
et al., 2003; Wood, 2016). Bitcoin blockchain can function correctly even up to half (1/2) of its
network is compromised, either taken over by validators within the network or by external
hackers, however 51 percent attack is a problem (Bernstein et al., 1987).

51 https://www.bbc.com/news/technology-56012952

34
 Annualized Total Bitcoin Footprints Single Bitcoin Transaction Footprints

Source: DIGICONOMIST, https://digiconomist.net/bitcoin-energy-consumption/

Figure 21: Bitcoin’s annual and single transaction footprints

35
o Based on specific project needs and requirements, blockchains used by various cryptocurrencies
are designed differently (see Table 8). Under the Bitcoin52 blockchain, any hashed data added to
a block is inalterable, i.e. it could not be changed, modified, canceled or deleted. A decentralized
permissionless Bitcoin blockchain is a trusted technology, not allowing any single Fed like central
authority or individual to control it; therefore, decisions are reached by a consensus protocol (Ben-
Sasson et al., 2014; Buchman et al., 2018; Yin et al., 2018). Timestamped data in a chronological
order becomes visible to all nodes (Massias et al., 1999; Haber & Stornetta, 1991).

Table 8: Blockchain segmented by permission model

Type Read Write Commit Example

Public Open Bitcoin,
Anyone Anyone
permissionless to anyone Ethereum

Open Supply chain

All or subset
Public Open Authorized ledger for retail
Blockchain Types

of authorized
permissioned to anyone participants brand viewable
participants
by public
Restricted to an All or subset Multiple banks
Authorized
Consortium authorized set of authorized operating a
participants
of participants participants shared ledger
Closed Fully private External bank
Private or restricted to ledger shared
Network Network
permissioned a limited set between parent
operator only operator only
“enterprise” of authorized company and
nodes subsidiaries

Source: Hileman and Rauchs (2017)

o Bitcoin blockchains uses consensus approach to ensure high security, its proof-of-work (PoW) is
derived from Adam Back’s Hashcash (Back, 2002) using SHA-256 hash function. Transactions via
a mining process are hashed into a Merkle tree (Merkle, 1980, 1987; Eastlake & Hansen, 2011)
which verifies and validates the accuracy of the hash value in the block header.
o Bitcoin blockchain offers anonymity and immutability. Bitcoin blockchain provides anonymity
(but not complete privacy), the identity of users is not revealed (pseudonymous). This aspect of
blockchain has prompted many governments to call for greater scrutiny of Bitcoin on terrorism
financing, money laundering, illegal drugs (i.e. Silk Road ) and human trafficking (see Adrian &
Mancini-Griffoli, 2019; Cuthell, 2019; Duffie, 2019; Milne, 2018; Sapienza & Zingales, 2012).
Public permissionless Bitcoin blockchain is immutable (resistant to attacks) since any hashed
data added to a block is immediately visible via the distributed ledger and stored by nodes of the
network (Bonneau et al., 2014; Kosba et al., 2016; Möser, 2013; Nakamoto, 2008).

52 Bitcoin with uppercase “B” is a purely peer-to-peer network of electronic cash without the need of a trusted third-party
and bitcoin with lowercase “b” denotes a unit of account to facilitate exchange.

36
2.3 The Classical Gold Standard in Practice – Gold 1.0

Events of the gold standard (for longer discussions along with a historical perspective, see Bordo,
1984; Bloomfield, 1959; Eichengreen, 1992; Eichengreen & Flandreau, 1997; Frieden, 1992);

o The gold standard began by a historical error in England, was very brief, and collapsed abruptly.
o Gold was used to back fiduciary (fiat) currencies issued by central banks or treasuries.
o The gold standard maintained a parity of foreign exchanges within narrow limits.
o The value of gold was defined in U.S. dollars (i.e. $20.67 per Troy ounce of gold).
o No implied restrictions were imposed as to how much gold to import or export.
o Along with gold coins, central bank issued fiat money was used which was tied to gold by varying
measures; additionally, some governments imposed limits and restrictions on convertibility of
their national currencies to gold.
o Convertible fiduciary (fiat) money to gold on demand achieved price level stability, i.e. reduced
inflation through the price-specie flow mechanism prevented the value of money to depreciate
(little inflation between 1880s and 1913, see Table 9 and Figure 22).

Table 9: Average and standard deviation of annual inflation

Country on gold 1880-1913 (%) 1880-1895 (%) 1895-1913 (%) Standard Dev.

Belgium 0.06 -1.87 1.67 3.79

Canada 0.77 -0.89 2.15 3.86
Denmark -0.25 -1.12 0.48 2.64
France 0.05 -0.53 0.74 3.43
Germany 0.42 -1.26 1.83 4.73
Netherlands 0.17 -0.53 0.74 1.93
Norway 0.62 -0.81 1.82 2.83
Sweden 0.29 -1.75 1.98 3.83
Switzerland -0.07 -1.92 1.47 3.81
United Kingdom -0.32 -2.35 1.38 3.88
United States -0.10 -1.31 1.45 2.00
Overall 0.19 -1.32 1.45 3.85

Source: Weber (2015)

o Some countries were on the “full” gold standard (full convertibility on demand), others were on
the “limping” gold standard (rules and restrictions are applied on currency-gold convertibility).
o Callable liabilities (i.e. bank deposits) except bank notes issued by commercial private banks
(United States and Canada) were redeemable in gold on demand.
o Central banks (monetary authorities) still had some latitude to lower or raise the fund rate to
cope with inflationary pressures; in the former, to encourage lending and investment (expansive);
in the latter, the objective is to cool off (i.e. contraction) a heated economy.

37
o Central banks played a limited role as the lender of last resort (i.e. no unlimited printing of fiat
money); however, monetary authorities invented certain loopholes (i.e. loaning gold to each
other) to circumvent the rules of the game (e.g. Bordo & Kydland, 1995).

Source: Weber (2015), slightly modified.

Figure 22: Price levels and inflation rates for selected countries (1800-1913)

2.4 Our Imagined Bitcoin Standard – Gold 2.0?

o Since the gold standard (classical and exchange) failed due to inherent flaws and weaknesses, our
new Bitcoin Standard will not be a replica of the antecedent standards. The adoption of the gold
standard was not universally agreed at first; then the major power Great Britain going on gold
accidentally forced its colonies and most countries in Europe to follow suit. The United States also
decided to adopt the gold standard after Germany, France, and Japan shifted to gold.
o We created a new and a better world called the Bitcoin World where the global financial system
is entirely based on a new Bitcoin (digital gold) Standard; under which, every country in the world
with no exception will have its own central bank digital money (i.e. digital dollar) and no fiduciary

38
 digital currency will enjoy “exorbitant privilege”. The dollar’s prolonged dominance coupled with
America’s abuse of sanction power as well as weaponization of dollar to annihilate sovereign
nations (even alias) refusing to act in the best interest of the U.S. prompted countries like China,
Russia, Turkey, and Iran to search for a viable alternative medium of exchange to kill off, deflate,
or end the dollar’s increasingly damaging hegemonic status.
o Under the Bitcoin standard, bitcoin is a unit of account for central banks’ reserves and will not be
backed by another commodity such as gold, its usage by people for every-day transactions will be
prohibited. Each central bank digital currency will be defined by an amount of bitcoin; unlike the
gold standard where fineness (standard was 22 karats – 0.9167 pure), weight (Troy ounce – 480
grains vs. avoirdupois ounce - 437.5 grains), and shape of gold coins were significantly varied and
disparate, bitcoins are bitcoins anywhere in the world and not subject to tangible requirements.
o No more careless (inflationary) infinite expansion of credit money as the Fed has done for many
decades. The central bank of each country will only issue national digital money (coin) by a pre-
determined fraction of its bitcoin reserves (i.e. 20%); moreover, every central bank issued digital
coin will be redeemable in bitcoin on demand using the corresponding exchange rate (i.e. $1 =
0.000023934 BTC). More importantly, since very limited inflation pressure and no interest rate
differentials among countries, there will be no differences (i.e. country-specific restrictions by a
monetary authority) in the matter in which central bank issued digital coins are tied to bitcoin.
o The proposed Bitcoin standard will achieve both price level stability (i.e. tamed inflation) and
exchange rate stability, i.e. interest rate differentials and exchange rate fluctuations will be rather
small because every central bank issued digital coin will be defined in bitcoin and there will be no
cost of bitcoin arbitrage among different countries, plus no cost of transferring bitcoin from one
country to another (i.e. transferring gold physically took significant amount of time and money).
o There will be a lot less frictional costs and instability-inflicting factors; therefore, the likelihood
of financial/economic crises will be significantly reduced (but not 100% eliminated).

2.3 The Bitcoin Standard in Practice

o The adoption of the Bitcoin standard will not be at will; without any exception, every country in
the world will adopt it and comply with its rules and requirements.
o Along with bitcoin as a global reserve cryptocurrency, each central bank (the Fed in U.S. case) will
issue its own digital coin (CBDC) that will be defined to equal some amount of bitcoin.
o Unlike the antecedent standards, physical fiduciary (fiat) currencies (coin and paper) will cease
to exist; and differently from the gold standard, there will be no anchor central bank or Fed issued
digital coin (i.e. digital coins of every state will be defined in bitcoins, see Table 10).

39
 Table 10: Fiduciary (fiat) currencies defined in bitcoin

Country 2021 GDP ($) Fiat Currency Defined in Bitcoin

United States 22,730,000,000,000 American Dollar 6,364,401
China 15,600,000,000,000 Chinese yuan 4,368,000
Japan 5,200,000,000,000 Japanese yen 1,456,000
Germany 3,960,000,000,000 EU euro 1,108,800
England 3,120,000,000,000 British pound 873,600
India 2,850,000,000,000 Indian rupiah 798,000
France 2,690,000,000,000 EU euro 753,200
Italy 1,920,000,000,000 EU euro 537,600
Canada 1,880,000,000,000 Canadian dollar 526,400
Russia 1,709,000,000,000 Russian ruble 478,520
Source: Google; https://www.cmcmarkets.com/en/trading-guides/largest-economies-in-the-world
Notes: The world’s total money stock is about $75 trillion; to cover the entirety of money in circulation, the
value of each bitcoin will be raised to $75,000,000,000,000 divided by 21,000,000 = $3,571,428 per bitcoin.

o Table 10 shows that the combined GDPs of top 10 countries ($61.66 trillion) equals 17,264,522
bitcoins (82.2% of 21,000,000). Under the Bitcoin standard, maximum supply of reserve bitcoins
is fixed at 21 million permanently; moreover, bitcoin will be a stable reserve cryptocurrency,
therefore its value will not see the type of volatility driven by factors shown in Figure 23.

Source: Author; Poyser (2017); Sovbetov (2018)

Figure 23: Key characteristics of Bitcoin blockchain and price influencers

o Under the new Bitcoin standard, ordinary citizens, private and public entities, financial and non-
financial institutions are not allowed to own or hold bitcoins. CBDCs are redeemable in bitcoin on
demand through central banking operations (i.e. buy, sell, or transfer).

40
 Development status of central bank digital currencies (CBDCs);

China is one of the leading countries making the transition from conventional money to digital
money, it is also leader in the adoption of touchless payment systems (the U.S. is lagging behind).
The status of CBDCs below has been directly extracted from Atlantic Council website 53; according
to which, 5 countries launched CBDCs (the Bahamas, Saint Kitts and Nevis, Antigua and Barbuda,
Saint Lucia, and Grenada); 14 countries initiated a pilot CBDC program (China, Sweden, Lithuania,
Ukraine, Hong Kong, Thailand, Singapore, South Korea, Saudi Arabia, and United Arab Emirates);
CBDCs are in development in 16 countries (Canada, Jamaica, Haiti, Brazil, France, Japan, Russia,
Switzerland, Euro Area, Turkey, Bahrain, Mauritius, South Africa, and Nigeria); 10 countries are
inactive in the CBDC field (Denmark, Finland, Egypt, North Korea, Malaysia, Trinidad and Tobago,
Saint Maarten, Curacao, Venezuela, and Uruguay); while 32 countries are still in the research
phase, 2 countries canceled their CBDC program (Ecuador and Senegal).

 81 countries (representing over 90 percent of global GDP) are now exploring a CBDC. In our
original report published in May 2020, only 35 countries were considering a CBDC.
 China is racing ahead, including by allowing foreign visitors to use digital yuan if they provide
passport information to the People’s Bank of China during the upcoming winter Olympics.
 Of the countries with the 4 largest central banks (the US Federal Reserve, the European
Central Bank, the Bank of Japan, and the Bank of England), the United States is furthest behind.
 5 countries have now fully launched a digital currency. The Bahamian Sand Dollar was the
first CBDC to become widely available.
 14 other countries, including major economies like Sweden and South Korea, are now in the
pilot stage with their CBDCs and preparing a possible full launch.
 Without new standards and international coordination, the financial system may face a
significant currency exchange problem in the future.

o The world is about $75 trillion (see Figure 24); therefore, the value of each bitcoin will have to be
raised to $3,571,428 to back 100% of the existing money in circulation (i.e. $67.8 trillion or 90.4%
of $75 trillion belongs to top 12 countries); namely, 1. China: $25T (7,000,001 BTC); 2. U.S.: $14T
(3,921,001 BTC); 3. Japan: $8.9T (2,492,000 BTC); 4. Germany: $3.3T (924,000 BTC); 5. U.K.: $3.1T
(868,000 BTC); 6. France $2.3T (644,000 BTC); 7. South Korea: $2.2T (616,000 BTC); 8. India:
$2.1T (588,000 BTC); 9. Hong Kong: $1.8T (504,000 BTC); 10. Brazil: $1.8T (504,000 BTC); 11.
Italy: 1.7T (476,000 BTC); and 12. Australia: $1.6T (448,000 BTC).

53 To track the development status of various CBDC initiatives, see https://www.atlanticcouncil.org/cbdctracker/

41
Source: Howmuch..net, https://howmuch.net/articles/broad-money-world-2019; slightly modified
Figure 24: Stock of broad money around the world
T: $trillion; B: $billion
Notes: We assume that the new Bitcoin standard’s debut is today (October 6, 2021, and currently 18,836,193 bitcoins are in circulation. All of the money in circulation is roughly $75T;
China: $25T; U.S.: $14T; Japan: $8.9T; Germany: $3.3T; U.K.: $3.1T; France $2.3T; South Korea: $2.2T; India: $2.1T; Hong Kong: $1.8T; Brazil: $1.8T; Italy: $1.7T; Australia: $1.6T;
Taiwan: $1.4T; Switzerland: $1.3T; Spain: $1.3T; Netherland: 908B; Mexico: $773B; Russia: $688B; Belgium: $601B; Thailand: $546B; Saudi Arabia: $488B; Singapore: $456B; Iran:
$436B; Malaysia: $406B; Indonesia: $401B; Sweden: $396B; Poland: $374B; Austria: $371B; UAE: $356B; Vietnam: $341B; Luxembourg: $313B; Norway: $273B; Israel: $234B; Ireland:
$234; Portugal: $216B; Philippines: $213B; Denmark: $202B; New Zealand: $200B; Egypt: $197B; Finland: $192B; Czech Rep: $190B; S. Africa: $184; Chile: $175B; Colombia: $168B.
42
3.0 Discussion and Concluding Remarks

Several years after the launch of Bitcoin, it’s mindboggling success (especially after the price of bitcoin
passed the $10,000 mark in 2017) and the propagation of altcoins have made some wishful folks
believe that the dollar’s days were numbered and Bitcoin could actually become a viable alternative
to fiat currencies. Many economists believe (at least in theory) that any fiat or crypto currency can be
a potential contender to end the dollar’s hegemony; but in practice, this is easier said than done.

Gold has been in our lives ever since humans came in contact54 with gold in ancient Egypt about 5,000
years ago55 (3000 B.C.); at that time, the use of gold was controlled by only pharaohs and temple
priests. Despite a conversion ratio of gold to silver was set up in Egypt around 2500 B.C. (Sumerians
of Mesopotamia created some elements of a silver standard), however gold was never used as part of
a monetary system until the last Lydian King Croesus who ordered minting of gold around 6th century
B.C. to show his unmatched power and wealth (Pedley, 1972).56 Although gold was not used as a
medium of exchange, it played an important role in many ancient civilizations including Incas, Aztecs,
Roman, Persian, Greek, Mayan, Egyptian, and Mesopotamian. Despite gold’s superior intrinsic value,
silver coins were in widespread use in the 15th century, and the silver standard came into existence
in the 16th century with the discovery of large deposits of silver at the Cerro Rico in Potosí, Bolivia.

The evolution of money from barter to its current form has not been instant; on the contrary, it has
taken for several millennia. Some economists still think gold should assume a bigger monetary role.
A historical error put England on the gold standard in the early 1700s, but officially in 1821. By the
late 19th century, silver was demonetized by then the major powers which marked the start of the
gold standard; Germany in 1871, France in 1873, and United States in 1879 (but officially in 1900).
By the 1900, most countries were already on gold (e.g. Bloomfield, 1959; Eichengreen & Flandreau,
1985); however, the Classical Gold Standard (1800s – 1913) was rather brief as it was disrupted by
the breakout of World War I (1914-18). Although the gold standard provided both price level and
exchange rate stability, its effect on economic growth was modest; in line, monetarists like Friedman
(1967), Friedman & Schwartz (1963) and Bernanke (2005; 2013) argue that the supply of fiduciary
(fiat) money is at the center of economic growth. England was also the first to leave the gold standard;
Bernanke and James (1991) and Eichengreen (2003) among others argue that Britain’s decision to
leave the gold standard in 1931 was a catalyst contributing to the Great Depression of the 1930s.

54 Scientists claim that planetary collisions brought metals to Earth. Since humans first discovered gold, about 200,000 tons
of gold have been extracted. The United States has more gold stock than any country in the world (i.e. over 8,000 tons).
For origin of gold, see https://www.rt.com/business/422022-gold-origins-discovered-space/
55 Archaeological evidence found in Paleolithic caves shows that humans interacted with gold thousands of years earlier

than Egyptians as the recorded history has indicated (for a historical perspective, see Davies (2002)).
56 Also see Roosevelt (2009) for archaeological evidence.

43
The evolution of American imperialism and the dollar’s hegemony are closely interlinked, which are
also viewed as main triggers fueling a search for viable alternatives to the dollar. Imperialism was in
America’s DNA inherited from its ancestors (European settlers) arriving in the new world after 1492.
The Revolutionary War (1775 – 83) was a defining moment in US history, the birth of a new nation
(July 4, 1776) also ignited the spark of American imperialism via the use of Monroe Doctrine of 1821
as a method of expansionism (Lens & Howard, 2003; Field, 1978; LaFeber, 1993; Sexton, 2011).

Similar to the 14th century Chinese experience of printing excessive quantities of paper money (i.e.
China eliminated paper money in 1455), some of Britain’s original 13 North American colonies were
forced to print paper money excessively between 1723 and 1760 which resulted in hyperinflation; in
turn, the British government issued a ban in 1764 which made the issuance of bank notes illegal in its
colonies with the exception of printing paper money to finance wars. Accordingly, the US Continental
Congress authorized the issuance of Continental paper notes in 1775 (more like IOUs) to finance the
American Revolution War (1775-83). The U.S. experience with Continental paper money got worse
due to lack of trust (i.e. redeemed at a significant discount); they were worth 1/7 th of the original face
value in 1778 and 1/40th by 1780, finally their circulation was seized permanently in 1781 (for a
historical perspective, see Bogart, 1930; Friedman & Schwartz, 1963; Bensel, 2000).

At the conclusion of the Mexican-American War of 1846, the 1848 Treaty of Guadalupe Hidalgo gave
United States California and New Mexico; other claimed territories included the states of Nevada,
Utah, Arizona, Wyoming, and Colorado (Adams, 2008; Bailey, 1937; Hudson, 1972; Hietala, 2003). U.S.
expansionism through intervention and annexation became its tradition after winning the Spanish-
American War in 1898; at the conclusion of the war (August 12, 1898), the treaty of Paris (December
10, 1898) ended the Spanish colonial rule in Americas (both North and South) and opened the door
wide for the United States to acquire new territories in the Pacific and Latin America such as Puerto
Rico, Philippines, and Guam (Corbin & Levitsky, 2003). The emergence of the U.S. imperial power
made her crave a lot more; the next milestone was winning insular possessions in the Caribbean and
Hawaii and playing a leading role in restructuring of the power in Europe (i.e. previously, power was
shared by Germany, France, and the UK which were also each other’s chief enemy).

Even before WWII ended, the United States assumed the role of creating a new dollar-based monetary
order at the 1944 Bretton Woods Conference, the 44 delegates from the wartime allies unanimously
accepted Harry Dexter White’s U.S. plan designed with the American view in mind; moreover, same
delegates agreed to establish several watchdog institutions including the IMF, World Bank, and BIS
to prevent the occurrence of another Great Depression (see Bordo, 1993; Bordo et al., 2017; Dooley
et al., 2004; Garber, 1993; Hazlitt, 1984). Following the failure of the Bretton Woods system of fixed
44
exchange rates in 1971 (President Nixon decided to cut the dollar’s link to gold) and the collapse of
the Soviet Union in 1991, the U.S. emerged from the Cold War as unrivaled without counterbalancing
or restraining its global power (Ikenberry, 2001). Three quarters of a century later, the U.S. and the
world are at crossroads, the U.S. will either continue its commitment to institutions created at Bretton
Woods or as threatened by the former President Trump, America will withdraw from the treaties (see
Bacevich, 2002; Beeson & Higgott, 2003; Dorrien, 1993; Gaddis, 1982; Ikenberry, 2005).

In the post-WWII era, while Europe has moved towards “perpetual peace”, the U.S. conversely has
turned into an anarchic Hobbesian underpinned by its economic power and undisputed military
might. The Divergence between Europeans and Americans can be best explained by the metaphor
“men are from Mars (Americans) and women are from Venus (Europeans), i.e. Kagan (2003); also see
Bailey (1937), Beeson and Higgott (2003), Bulmer (2014), Chickering (2004), and Field (1978). The
United States has always defended the American imperialism (“America First” policy) and the dollar’s
prolonged hegemony at any cost, but the increased abuse of sanction power and weaponization of
dollar in recent years (especially during the Trump administration) has angered many of its alias in
Europe. In fact, countries like China, Russia, and Turkey have been accumulating massive amounts of
gold (also referred to as “modern gold rush”) to shield (hedge) their economies against any adverse
effect of the dollar’s disruptive power (Golley & Song, 2011; Kenen, 2010; Krugman, 1984).

Countless sanctions, embargoes, tariffs and trade wars have not prevented the dollar’s natural pull
from diminishing slowly. Other key factors for dollar losing its smile include; China’s massive foreign
reserves; fast rise of the renminbi; the failure attempts to dismantle gold and its readiness to reclaim
a monetary role at the heart of the next monetary system. President Trump’s selfish “America First”
policy and its spinoff actions have debilitated the economies of Iran, Venezuela, China, Russia, Turkey,
the Middle East as a whole and a host of other countries in Europe. Coronavirus was the final blow to
put the already fragile world economy into state of coma. Instability-inflicting foreign and defense
policies of the U.S. coupled with its engagements in video game like warfare were enough to push
many economies off the cliff. Bordo (1993) argues that no monetary system is fail-safe nor is it absent
from certain structural or/and functional flaws. Many scholars and prominent economists assert that
the existing international monetary system has been plagued by disorder causing greater exchange
rate volatility, price instability (Miller, 1991), contraction in capital flows (see Ahmed & Zlate, 2013;
Bernanke, 2011; Kahler, 1998), and a noticeable rise in global imbalances (Bernanke, 2007). 57

57 For longer perspective, see Blanchard & Milesi-Ferretti (2009); Caballero (2010); Obstfeld & Rogoff (2009).

45
After the 1970s and the 1980s, often referred to as the “lost decades58”, the decade of the 1990s did
not start well either; in fact, the turbulent period pushed many economies of the world into recession
contributed by a prolonged economic stagnation in Japan, banking crises in Europe, the Asian crisis
of 1997 in systemic nature, and currency crises in many countries. The 42nd US President Bill Clinton
described the Asian crisis as a major “glitch”; according to the former Fed Chairman Alan Greenspan,
investors lost in Asian equities (i.e. excluding Japan) over $700 billion, $30 by American investors
(Nanto, 1998). Not everything was bad in the 1990s, the advent of the Internet and the launch of
Windows 95 were historic milestones; however, developments in the aftermath such as technology
(internet) boom, dot.com phenomenon, and crash (bursting of the internet bubble) of the tech-heavy
NASDAQ all happened in a time span of just three years (1998-2001).

Table 11: Top 10 cryptocurrencies by market capitalization

Rank Symbol Code Name Price ($) Market Capitalization ($) Circulating Supply

1. BTC Bitcoin 55,461 1,042,656,826,565 18,837,906

2. ETH Ethereum 3,637 428,117,980,843 117,840,545

3. BNB Binance 437 73,697,919,092 168,137,036

4. ADA Cardano 2.28 93,533,807,349 32,143,065,465

5. USDT Tether 1.00 68,222,686,941 68,215,069,675

6. XRP XRP 1.08 58,416,554,367 46,471,846,087

7. SOL Solana 159.39 47,582,443,907 299,426,737

8. DOT Polkadot 33.73 33,426,819,013 987,579,315

9. DOGE Dogecoin 0.2499 33,225,453,067 131,610,462,914

10. USDC USD Coin 0.9997 32,764,303,026 32,770,974,089

Source: CoinMarketCap, https://coinmarketcap.com/ (accessed on October 8, 2021)

In terms of financial mayhem, the decade of 2000s with three unprecedented financial shocks made
both 1980s and 1990s look and feel trivial. Financial losses from the three crises originated in the U.S.
(the dot.com bust of 2001, mortgage debacle (subprime) of 2006, and global financial crisis of 2008)

58 Economists and various commentators have referred to the following periods of economic crises and the resultant
stagnation or recession as “lost decade”; 1991-2001, 2001 to 2011, and 2011 to 2021. For example, the 1980s was a lost
decade for many economies in Latin America, and the 1990s was for Japan due to its prolonged economic stagnation.

46
were estimated to be in the range of $20 to $30 trillion. It may have not been a direct consequence,
but Bitcoin emerged at the height of the financial calamity, which is also one of the reasons for its fast
adoption. Over a decade later since its launch in January 2009, Bitcoin still rules (Table 10).

The history of financial markets has undergone numerous speculative, non-speculative bubbles, or
manias. Every time Bitcoin breaks a new price record, the old debate reemerges, prompting people
to discuss similarities between the famous first bubbles59 of the 17th century (Garber, 1990; 2000)
and the famous bubbles of the 21st century60. Many economists find common aspects between the
famous first bubbles and the modern financial crises (new bubbles); as such, irrational behavior, day
trading, excessive leverage or debt hangover, a degree of speculation, herd mentality, unsustainable
high demand, lax (frivolous) credit conditions, aggressive or even predatory lending, experimental
markets (new technology or innovative product driven), and loose or no regulation.

This paper concludes that bitcoin is not a stable coin and can’t be used for everyday transactions due
to its inherent design flaws; for one thing, bitcoin does not meet one of money’s basic functions (i.e.
store of value) because of erratic price volatility (i.e. at least two dozen times bitcoin price has moved
40% either upward or downward). One of the biggest negative aspects of Bitcoin is that it is based on
an electricity-intensive mining operation mainly powered by fossil fuels. Bitcoin blockchain, using a
distributed ledger technology (DLT) that relies on proof-of-work (PoW) and cryptography, has the
following weaknesses: high latency and huge operational cost; low transaction processing speed (i.e.
between 3.3 and 7 transactions per second); low security (i.e. the majority of mining is controlled by
a handful of mining pools known as bitcoin cartels, which can rewrite an alternative financial history
if 51% of the computing power is controlled by them); low scalability (i.e. Bitcoin’s maximum supply
of fixed 21 million bitcoins can hinder economic growth and expansion); minimal regulation as well
as backlash to Bitcoin and other cryptocurrencies (to protect fiduciary currencies, governments, law
makers, and central banks (the Fed and ECB in particular) curtail Bitcoin’s true potential.

This paper’s proposed new Bitcoin Standard will be stable, longer-lasting, and capable of satisfying
the reserve needs of central banks around the world. Under the Bitcoin Standard:

o Bitcoin will be a supranational reserve currency used by central banks only.

o Ownership, trade, and other uses of bitcoins by citizens and various entities will be prohibited.
o The fixed supply of bitcoins (21 million) will remain unchanged.

59 The Dutch Tulipmania (1634-38), Mississippi Bubble (1719-20), and South Sea Bubble (1720). There were also the
Roaring Twenties (1924-1929), and Japan's "Bubble Economy" of the 1980s
60 Internet bubble of 2001-02 (dot.com crisis of 2001); the US housing bubble of 2003-06 (subprime debacle of 2006 and

global financial crisis of 2008), and the cryptocurrency bubble (the roaring Bitcoinmania), first (2017) and second (2021).

47
o Every country’s financial authority will switch to central bank digital coins (CBDC).
o CBDCs will be defined in bitcoin by a corresponding exchange rate for each country.
o 100% of CBDCs will be 100% backed by bitcoins.
o Any increase in the digital money supply by a central bank will require additional bitcoins.
o The value of each bitcoin will be raised to a price level to cover 100% of the money in circulation.

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