Bitcoin as a piece of eight of the 21st century




Many commentators compare Bitcoin to gold, with the idea that its finite supply makes it an attractive long-term store of value. There have been historical examples of wide adoption of gold coins, such as the sovereign and semi-sovereign of the British Empire. However, the adoption of sovereigns was often promoted and directed by the British imperial government, to the dismay of local administrators who often suffered from shortages of foreign exchange. Bitcoin does not have a nation state promoting its adoption, so the comparison between it and gold sovereigns is weak. One of the most widely used silver coins in the world, the Spanish silver dollar, may offer a better comparison. The Spanish silver dollar, or real as it was originally known, was unusual in that it prospered as a commercial currency while Spain, its nation of origin. , he declined. Furthermore, it was adopted in countries that were never Spanish colonies, thus violating the premise that a currency can only prosper if it has a strong country of origin that promotes its use. The three main factors behind the success of reale were its availability, quality and verifiability. The reale was created in 1497, five years after Columbus landed in America, when King Ferdinand and Queen Isabella reformed Spain’s monetary system through the Pragmatics of Medina del Campo. The new silver real could be divided into eight parts, hence the name “pieces of eight.” Note that it should not be confused with “doubloons”, which were made of gold. Fifty years later, in 1545, the Spanish discovered Cerro de Potosí in present-day Bolivia, which was the richest source of silver in the history of the world. The shortage of coins led the Spanish crown to allow the minting of reales in New Spain in 1535. At the same time, Portuguese explorers had discovered not only the route to the Indies and China, thus avoiding the Arabs and Venetians who traded with gold ducats along the Silk Road, but also that East Asian merchants preferred silver to gold. Chinese demand was particularly great as a shortage of the bronze used in Ming dynasty coins forced traders to look for alternatives. Demand for silver soon surpassed Chinese and Japanese supply, creating a ready market for regular shipments of reales from the colonies of New Spain to the Philippines, another Spanish colony. Its adoption spread throughout the American continent, so that in 1792 it was the de facto currency of the newly independent United States. In fact, when the US dollar was first issued, it was pegged to the real. 87 years later, in 1879, China would do the same, pegging its new yuan to the real or Mexican peso, as it was known then. Therefore, the growth of the Spanish Empire provided distribution and availability in both America and Asia, which was the first step towards its success. The second factor was that the Spanish government ensured that the quality of the real remained constant, which in turn meant that its value remained stable. Unlike many other currencies of the time, the real was subject to very limited debasement. However, while the real remained strong, the Spanish domestic economy weakened. Efforts to combat inflation, some of which involved debasing the national fleece currency, stifled exports and encouraged imports and further crippled the Spanish economy. These policies, combined with the demands of continued conflict and wasteful royal spending, ultimately led to large quantities of silver royals being exported to the rest of Europe. The other European nations, particularly the Dutch and the British, were eager to compete with the Spanish empire and therefore needed the money to buy tea, silks and spices from China and Asia. The early English East India Company had begun by attempting to sell heavy woolen cloth in India and China, predictably with very limited success. Using silver reales was much easier. The final factor in Reale’s success was verifiability. Other countries had attempted to replicate the real, but Chinese and Asian merchants rejected even foreign coins of the same quality and weight, as it was easier to assume that Spanish reales were consistent. The United States was one of those failed competitors. In 1872, the U.S. Treasury noted that while the real was at a 6 to 8 percent premium in East Asia, U.S. silver was at a 2 percent discount. Therefore, in 1873 the United States Coinage Act authorized the creation of an American “commercial dollar.” This new currency became known as the “eagle dollar” due to its bald eagle design. The United States hoped to benefit from seigniorage based on the belief that most of the Eagles would never cross the Pacific again to where they could be redeemed. The Eagle had mixed success. Despite Emperor Tongzhi’s endorsement, it was adopted to a limited extent in southern China, but not in the north. What’s more disappointing is that as the value of silver fell, the eagle began to reappear in the US, where its silver content was less than its face value, resulting in refunds. It was gradually eliminated and, in fact, starting in 1873 many countries began to migrate to the gold standard. Therefore, the question remains whether Bitcoin, which has no nation, could ever be treated as a commercial currency. Like the Spanish silver dollar, it is in principle available in abundance, since it is found on the Internet. Where the real had a consistent weight and purity, Bitcoin has a consistent design and structure. The mathematics behind it is the same in any country. While the real had gained what was effectively brand recognition, allowing holders to easily recognize it, Bitcoin is easily verifiable because it sits on a public ledger with an immutable hash structure. It took about a hundred years for the real to gain its recognition and status, and the same may happen, over time, for Bitcoin. While there may be criticism of the suitability of Bitcoin as a medium of exchange, which the reale certainly had, what is undeniable is that Bitcoin shares several of the successful characteristics that underpinned the adoption of the reale in its availability, quality and verifiability. It was notable that a currency achieved wide adoption while its country of origin was in decline. That Bitcoin achieved this without any nation of origin is even more remarkable. This is a guest post by Nick Philpott. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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