Letter: At least bitcoin does what it says on the tin

Gavyn Davies makes many perceptive observations in his opinion piece “Cryptocurrencies have ambitions for gold’s role” (Opinion, January 11). However, it seems to me Mr Davies omits to mention the most important point about bitcoin’s relationship with gold — and with money — which is that all three rely on the same principle, and are, in their fundamentals, the same thing. Each has no store of value whatsoever. The ability of each to be exchanged for goods or services depends entirely on consensus and convention. Each reflects the view that in the future someone else will be willing to exchange it for something of value or use at whatever level they decide at the time.

When the Bank of England says on its banknotes “I promise to pay the bearer the sum of ten pounds” the promise is meaningless — indeed it is misleading — because the government doesn’t promise any item of intrinsic value whatsoever, it just offers whatever the market in pounds might in the future buy, which could theoretically be nothing. Similarly, it is widely assumed that gold is underpinned by an intrinsic store of value because of the underlying demand for jewellery, but most gold is used for speculation, not jewellery. Its value too depends on consensus and convention.

Blockchain currencies are also only worth whatever the consensus of people decide they want to pay for them. But at least it is clear in their cases what their market depends on. They are being, in effect, more honest and transparent.

David Crook
Chief Executive, Tail Wind Advisory & Management, London WC2, UK