What clearly distinguishes Bitcoin from fiat currencies and gold is its predetermined absolute scarcity: only 21 million bitcoins can ever be created. This gives the owner of bitcoins a known percentage of the total possible supply. Gold, on the other hand, is not immune to increases in supply. Fiat currencies have proven to be prone to constant increases in supply.
Gold has a long and storied history. Fiat currencies, on the other hand, are a relatively recent anomaly of history. Fiat currencies have had a near-universal tendency toward eventual worthlessness. Bitcoin, despite its short existence, has weathered enough trials in the market that there is a high likelihood it will not vanish as a valued asset any time soon.
When bitcoins are transmitted on the Bitcoin network, there is no human intervention deciding whether the transaction should be allowed. As a distributed peer-to-peer network, Bitcoin is designed to be censorship-resistant. Whereas in the fiat banking system, the states regulate banks and the other gatekeepers of money transmission to report and prevent outlawed uses of monetary goods.
Saifedean Ammous said: “Bitcoin’s advantages lie not in its speed, convenience, or friendly user experience. Bitcoin’s value comes from it having an immutable monetary policy precisely because nobody can easily change it”.
Money is costly to create. Bitcoin’s PoW ensures the cost to mine a Bitcoin is near equivalent to how much it would cost to purchase one on an exchange. Bitcoin is open-source; its design is public, it is usable by anyone/anywhere/anytime. Developers can freely program applications on top of the Bitcoin protocol without having to ask anyone for permission.
Neil Woodfine stated: “It is dynamic, upgradable and extendable. It does not need throwing out and replacing with each new iteration, it will continuously improve.”
Decentralization means a lack of centralized control. Decentralization is an important trait for money because any centralized control could threaten any one of the other traits. Decentralization is also important because it enables greater social scalability.
For a species of money to survive, it needs to be competitive on every attribute and be exceptionally better on a few of them. The fact that gold has remained a valued commodity for thousands of years speaks to the importance of these specific traits. In fact, the combination of traits possessed by gold and other precious metals eventually provided the foundation for the next evolution in money, fiat currency.
The following are the combination of traits:
It has to be collectible.
It has to be valuable enough to be stored and kept over time. As a good becomes more widely recognized as a suitable store of value, its purchasing power will rise as more people demand it for this purpose.
It must be used as a medium of exchange. Once stabilized in purchasing power, the opportunity cost of using money to complete trades will diminish to a level where it is suitable for use as a medium of exchange.
It will be used as a unit of account. When money is widely used as a medium of exchange, goods will be priced in terms of it.