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Why Does Bitcoin Draw Comparisons To Gold?

In Bitcoin’s latest high profile adulation, famed investor Stan Druckenmiller stated, “frankly, if the gold bet works, the bitcoin bet will probably work better.”

If you’re in this space, you’re no stranger to comparisons between bitcoin and gold. Both are scarce, highly divisible, transferable, expensive to mine, and have supplies that cannot be tampered with, particularly by any government or institution.

That’s where the similarities end. Bitcoin is a purely digital creation that exists only as entries in a ledger shared across a distributed network of computers. Its scarcity comes from code that dictates a supply of 21 million. The cost to mine it comes from the electricity expended in a global competition amongst computers (miners) racing to guess an arbitrary number.

Gold on the other hand is a metal that we pull out of the ground. But if bitcoin was created by a pseudonymous programmer, then that begs the question…

https://preview.redd.it/vz7gj0t6x1z51.jpg?width=524&format=pjpg&auto=webp&s=808a80f5497efedf015cf294acb3c211b8172994

One of the fringe benefits of crypto is that it forces you to take a deeper look into how the rest of the world works. At the end of the day, most of what you see in this industry is simply the recreation of things that already exist, but in a purely digital environment.

For example, want to understand what an automated market maker (AMM) like Uniswap is? First you need to understand what a market maker is. Turns out it’s a basic function in finance that’s been around for as long as there have been markets. Thousands of years ago there was some guy in Mesopotamia with a big stockpile of wheat and barley who, for a small fee, was always willing to trade wheat for barley or vice versa to keep the market moving. Swap the wheat and barley for YAM and ETH and automate it on Ethereum and there you go. Uniswap.

Want to understand what digital gold is and why it’s valuable? Start with its physical analog and go down that rabbithole. You’ll end up in space a couple billion years ago before the earth was even formed.

Disclaimer: getting a bit weird for your Friday; regular scheduled program resumes Monday

**Gold: the extra-terrestrial**

There’s a reason the Winklevii told David Portnoy that Elon Musk was going to make gold rain down from space, [**making it as plentiful as sand**](https://twitter.com/stoolpresidente/status/1294051648533401600?s=20). Gold does originate from space, but that’s not the interesting part.

The interesting part is how it gets created by a collapsing star and a cataclysmic explosion called a supernova.

**Quick primer on stars**

The familiar example of a star is “The Sun” – the big ball of gas that our planet revolves around and sets the rhythms of our days, seasons, and years.

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https://preview.redd.it/6nszwg39x1z51.jpg?width=1800&format=pjpg&auto=webp&s=f0e78855db5186eb8096e0c4b0bdeb095ee40096

While it’s a big deal for us, from a cosmic perspective our sun is a dime a dozen. As ole Carl Sagan once said:

“The total number of stars in the universe is greater than all the grains of sand on all the beaches of the planet Earth.”

So in short, stars are big balls of gas and there’s a whole lot of them out there. What’s happening inside the star is what ultimately produces gold.

**The recipe for gold**

To understand this next part, we have to go back to high school chem class and revisit the lightest element on our periodic table: hydrogen.

Stars are made up mostly of hydrogen gas. Since stars are so massive, gravity creates tremendous pressure at the star’s core. This pressure causes hydrogen atoms to bang into each other, which creates helium and gives off tremendous energy through a process called nuclear fusion. Nuclear fusion is what makes stars both hot and shiny.

So nuclear fusion creates energy and turns hydrogen into helium, which is a slightly heavier element than hydrogen. Once nuclear fusion creates enough helium, that same process starts creating carbon, which is slightly heavier still. Next comes oxygen, then iron, then nickel, which are each slightly heavier than its predecessor.

So as the hydrogen atoms at the core of a star bash into each other over the course of millions of years, creating other heavier elements, the star’s hydrogen slowly depletes. Once the star’s core runs out of hydrogen, the star collapses on itself. Boom. A supernova. A rare cosmic event that happens a few times a century.

This collapse creates a ton of pressure which jams protons into electrons, forming neutrons. All of the heavier elements that had been formed by the star like iron and nickel combine with these neutrons and that’s the process that creates gold as well as silver, lead, and uranium – the heavy metals. Supposedly, this all happens in seconds.

So if you’re still reading, heavier elements get formed through nuclear fusion over millions of years. In the rare event in which a star collapses and goes supernovae, heavy metals like gold and silver get formed in an instant.

Ok, but how did gold find its way to Earth?

**How It Got Here**

Well the star that exploded propelled all of the elements it’d cooked up throughout the universe, so there’s a bunch of gas and stardust just kind of floating around. After enough time, gravity does its thing and all of that gas and dust starts to coalesce, forming planets.

When the Earth was forming, a bunch of gold dust got thrown into the mix. Over the course of a few billion years, the Earth’s molten core caused that gold dust to clump together in the form we can expensively extract from the ground today.

It’s estimated that from this entire process, we’ve mined just enough gold to fill three olympic sized swimming pools. With that limited supply, we’ve created money, jewelry, electronics, dentistry fillings, and Peter Schiff’s favorite hard asset class.

**Wrapping it up**

So there you have it. Stars turned a bunch of hydrogen into heavier elements over the course of millions of years before exploding and instantaneously creating heavy metals that got propelled through space, some of which made their way to Earth where a bunch of monkeys dug it out of the ground to create money and jewelry and an asset to argue about on the internet.

The reason gold is scarce is because, while there is a ton of it just floating around the universe, for us humans it’s not so easy to recreate the cosmic process that forged it. That same process produced a metal that’s pretty, malleable, and divisible. All qualities that, for one reason or another, we find valuable.

Some of these [**qualities**](https://www.casebitcoin.com/what-is-bitcoin) Satoshi imbued into Bitcoin. Mainly its scarcity and divisibility. He also added some qualities that make it much more transferable and verifiable. And that, my friends, is why our favorite magic internet money draws comparisons to a shiny space metal we pulled out of the ground.

https://preview.redd.it/f7yh02ckx1z51.jpg?width=524&format=pjpg&auto=webp&s=b777d756ba3e8a6470f2d854b48f9534c4822ff3

**Source:** [Messari’s newsletter](https://messari.io/newsletter?utm_source=reddit=post&utm_campaign=goldenanalog)



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