The practicality of a gold (or silver, or platinum) standard currency can be shown by a simple chain of reasoning.
When you receive a banknote in your hand from the bank that issued it you can’t be certain of its authenticity. It may look or feel correct, but it still might be a well-made counterfeit. The only reason why you don’t worry about it is that you know that the bank will have checked sufficiently through its banknotes already, looking for those with identical identification numbers from those originally printed.
Howwver, when your bank account receives an elecronic version of the banknote you cannot be certain of the background of the money because there is no identification number on each unit. A fake digital pound or dollar wouldn’t show up by any sort of duplication test. Once a fictive unit has been introduced as money into into any financial institution then it can live as normal life as any genuine digital ccurrency from then on.
Of the two types of currencies above, the banknote one is, let us say, 99% trustworthy while the digital one is somewhere between 0% and 99% trustworthy depending on the nature of the various owners before it gets to you . What about a digital currency that’s guaranteed to be 100% trustworthy? This claim is made by bitcoin — and several others of a similar type — until recently quite fashionable among some.
Bitcoin and other similar digital currencies not only contains an identification number but also its past history — called a blockchain — no matter how many transactions it’s been through since its formation. This enables it to be used between individuals without any financial intermediaries such as banks Thus, if he wants to, the user of a bitcoin could trace its use back to when and where it was originally created and thus its validity.
The problem with blockchains is that, in ime. each bitcoin accumulates a long back history. Thus, it isnt scalable. The more it’s used the more that electrical power is required in users’ computers or smartphones. This make bitcoinage potentially more expensive than ‘normal’ digital money that we use now. It also means that transactions become very slow. Bitcoins turn out to have a high price for the gain in assurance against conterfeiting.
Another claimant for 100% trustworthyness is digital-gold. Imagine an ingot of gold sitting in a bank vault. Because it’s of precise weight then it represents a precise and equal number of digital currency units — in this case each with its own identification number — in the real world. While the gold units remains static, each of its digital ones in partnership are buzzing about as they move from the ownership of one person to another.
Also, if a person wanted to know what surplus cash he had the bank could print a list for him of all his unts, and their identifcation numbers. If he was a ‘doubting Thomas’ abut their validity he could also go the bank and ask to see all the ingots containing his wealth in the form of gold. To be helpful, the bank could easily relocate all his identification numbers scattered about in different ingots into one ingot. The owner could, in fact, take the ingot home with him if he wanted. There couldn’t be anything more secure and practical than that.