Why Bitcoins Are Just Like Gold

Many people still have a difficult time wrapping their heads around what Bitcoin is or why it even has value, especially as the virtual cryptocurrency continues to scale record heights. How isn't this a Ponzi scheme?

A good way to look at it is to compare Bitcoin to gold. What gives a shiny metal that doesn't have a whole lot of real utility--outside of jewelry and limited industrial use--any kind of real world value? The only reason gold has value is because one day, way back when, long before recorded history, society simply decided that this yellowish precious metal should represent “money.” From that day forward--as that idea spread virally across the globe (or at least the small part of the planet then settled by homo sapiens)--gold came to be worth something in the eyes of the people.

As a representative (and thus store) of value, it became a universal intermediary between goods and services. This was the natural, inevitable economic evolution of the barter system. As it retained its value over time--and eventually throughout human history--gold gained cultural credibility. That’s the quick and easy answer.

Why the chemical element Au? It's got the obvious aesthetic qualities, for one. But gold’s longevity comes from scarcity; its limited quantities were never able to keep up with demand. Since the beginning of human history, a total of 171,300 tonnes of gold have been mined.

As the human economy evolved, we'd eventually transition from gold to paper money, but up until the end of World War II gold remained a fundamental piece of the financial system in the form of the gold standard, by which governments pegged the value of their printed currencies to amount of gold they owned.

Read the rest over at the new Motherboard.VICE.com.