Bitcoin hits a new all-time high: Rethinking gold, the US dollar and stablecoins

We use money every day, but few people really understand its structure and logic.

Nick Bhatia, the author of the book "Money Pyramid", is both a financial practitioner from Wall Street and a Bitcoin researcher. He did not use complex terms, but started from a very basic question: What is money? Who defines its value? And who maintains its credibility?

The core point of the book is: "Currency exists in layers." Gold, US dollars, Bitcoin, stablecoins, and even platform points all seem to be able to be paid and are called "money", but their structural status is completely different. Some are ultimate assets, and some are just credit certificates for a certain commitment.

The value of the book "Money Pyramid" is not to teach you how to invest in currency, but to help you disassemble the system logic behind currency. It makes you realize that we do not live in a unified, single-layered monetary system, but in a "bookkeeping order" with a hierarchical structure and dynamic evolution.

The Story of the Roman Silver Coin

The book begins with a seemingly distant historical event: the Roman Empire's silver denarius.

Around 211 BC, the Roman Republic first issued this silver coin with the aim of integrating the economic system of the entire Mediterranean region. By the 1st century AD, after the establishment of the Roman Empire, the denarius became the official currency and was circulated in large areas of Europe, North Africa and West Asia.

When it was first issued, the denarius contained 98% silver, weighing about 3.9 grams, and was often cast with the emperor's head and military exploits on the back, symbolizing the glory and credit of the empire. Because this currency was accepted by the imperial army, it also became the preferred settlement tool for international trade, somewhat similar to today's "dollar standard".

But this glory did not last long. With the expansion of the empire and the fiscal deficit, the denar began to gradually "slim down". When Marcus Aurelius was in power in the 2nd century AD, the silver content had dropped to 80%. Later, inflation intensified. By the time of Claudius I in the middle of the 3rd century, less than 5% of the silver remained, and the rest was mostly copper or miscellaneous metals. The appearance is still the denar, but the core is no longer silver, but a low-quality alloy.

The most typical change occurred in 274 AD, when the Roman Emperor Aurelian even introduced a new currency "Antoninianus", continuing to use the name of "silver coin", but with almost no precious metal components. In other words, it was a "face currency" - the name is silver coin, but in fact it is already copper coin.

During this process, there was no currency reform, no new currency was issued, and no announcement of "we want to devalue". Everything was done quietly under the premise of "the name remains unchanged". People thought they still had "silver coins" in their hands, but gradually found that they could buy less and less things.

Most currency crises are not explosive, but "slow collapse of trust". You won't go bankrupt in one day, but the money in your hand can't buy the same things in a few years. And you may not be aware of this.

Currency is layered

We often say "money", but in fact, the various "money" we come into contact with in daily life are not the same in essence. The balance in the bank account, the paper money in your hand, the platform's points card, and even the USDT you bought or the stablecoin in the company account, although they all seem to be usable at the "payment" level, they are completely different types of currency in essence.

The book puts forward an important concept: Currency exists in layers, and the credit structure determines its hierarchy. The author divides the monetary system into three layers:

• The first layer of currency (Layer 1) is the "ultimate asset" that does not require trust or counterparties, such as gold and Bitcoin. If you own it, you directly own the value without relying on the commitment of any institution;

• The second layer of currency (Layer 2) is bank deposits, banknotes, stablecoins, etc., which are essentially "commitments" or "debt certificates" for the first layer of assets and must rely on the issuer's performance;

• The third layer of currency (Layer 3) is various platform points, vouchers, and prepaid cards. They are only valid in specific systems and have the weakest liquidity and credit.

The 100,000 yuan deposit in your account does not mean that you really own 100,000 yuan in assets, but that the bank owes you 100,000 yuan on the books; the USDT in your hand is a certificate that Tether promises to return your US dollars at a 1:1 ratio in the future; the bottom layer of your Alipay balance may even be a "digital representation" after multiple financial institutions jointly hold funds.

From the perspective of legal and financial structure, these are second- or third-layer currencies. They are fine when they run well, but once the opponent has problems, the "money" in your hand may become a piece of waste paper.

So the author said: You think you own assets, but in fact you just trust that a certain system has not had any problems.

Many people hold stocks, funds, and bonds and think they are assets. In fact, from the perspective of the currency pyramid, they are "credit certificates on the balance sheet" and not risk-free currencies.

This explains why people rush to buy gold, US dollars, and even Bitcoin at the moment of financial crisis, war or regime change - they are not investing, but "returning to the first layer", returning to an asset that "does not require commitment from others".

This logic of "layered currency" can be seen everywhere in our modern monetary system. And the "US dollar" has taken advantage of this structure to sit at the top of the global financial pyramid.

The dominance of the US dollar is not obtained out of thin air, it is established through a whole set of currency layering mechanisms.

In 1944, before the end of World War II, 44 countries held a meeting in Bretton Woods, New Hampshire, USA, and decided to establish a new international monetary system. The core content is: The US dollar is anchored to gold, and other countries' currencies are anchored to the US dollar. From then on, gold was located in the first layer, the US dollar became the "first in the second layer", and the legal currencies of other countries were in the third layer below the US dollar.

This system makes the US dollar the "clearing core" of the world, because the central banks of other countries cannot directly use gold as reserves and can only hold US dollar assets. This is equivalent to admitting that: In actual operation, the US dollar is the "representative" of gold and can be regarded as a "pseudo first-tier asset".

The US dollar operated under the Bretton Woods system for nearly three decades until 1971, when the Nixon administration suddenly announced the "closing of the gold window", that is, the end of the commitment to exchange the US dollar for gold. From that moment on, the US dollar officially broke away from the gold anchor and became a complete credit currency.

But strangely, the global status of the US dollar has not been weakened, but has been further consolidated.

This is because: first, although the Bretton Woods system has been terminated, the US dollar has long been embedded in the infrastructure of global trade, finance, and capital settlement; second, the United States has the world's most powerful financial market and the deepest bond pool. Even if other countries do not believe in the US dollar, they lack alternative options; third, almost all key commodities (such as crude oil, grain, and metals) are priced in US dollars, and the US dollar has become the world's "pricing unit."

So, when we say "the US dollar is the world's sovereign currency" today, we do not mean that it is a "globally recognized banknote", but that it occupies a structural upper position in the global currency pyramid: the legal tender, cross-border assets, and central bank reserves of most countries are actually "layered mirror images" of the US dollar.

In other words, if we draw the global monetary system as an inverted pyramid:

• The top layer is gold and (theoretically) unrivaled assets;

• The middle is the US dollar, which is the world's reserve currency and controls major financial settlements and cross-border balance sheets;

• The bottom layer is the world's currencies and commercial bank credit, which are constantly dependent on the US dollar market liquidity and interest rate environment.

This structure is not determined by law, but has been gradually solidified through decades of financial structures, asset flows and policy arrangements.

The Nature of Central Bank

When we mention "central bank" today, our first reaction may be interest rate, exchange rate and money release. But in the book "Monetary Pyramid", the author reminds us: The earliest function of the central bank was not to "issue money", but to "keep accounts" - more precisely, to clear accounts.

This concept may not sound intuitive at first, but it is easy to understand in the historical context.

In the early 17th century, Amsterdam, the Netherlands, had just emerged as the trade hub of Europe. As an important port connecting the Baltic Sea, the Mediterranean and the East Indies, a large number of cross-border merchants traded here every day. However, the monetary system at that time was extremely chaotic: silver dollars, thaler, florin, gold coins, coins of different currencies, different years and different contents circulated in the market, and each transaction had to be verified, weighed and changed, which was troublesome and prone to errors.

In order to reduce transaction costs and unify the clearing system, the Bank of Amsterdam (Wisselbank) was established in 1609. The institutional design of this bank is epoch-making: it does not issue loans or conduct commercial operations, but only does one thing - accept gold and silver coins deposited by merchants, and record them as "bank deposits" in the account book. After that, all payments are completed through the bank's internal account book.

This is the first time in the monetary system that the transition from "physical transfer to account book transfer" has been achieved. You no longer need to move coins, the bank adjusts the account, and the transaction is completed. Efficiency has been greatly improved, and transaction credit has become more centralized and unified. In other words:

Who keeps accounts and who recognizes the validity of a transaction determines who controls the "order of currency."

This model was later spread to the UK and influenced the establishment of the Bank of England in 1694, and also became the institutional prototype of the modern central bank.

Most of the currencies we use in daily life are second-tier ones - such as bank deposits, Alipay balances, and local payment systems - they are just debt certificates issued to you by commercial institutions. However, the transfer and settlement between banks cannot be directly interoperable, and a "ledger master node" is also required to coordinate. This node is the central bank.

When you transfer money from CCB to CMB, the real settlement action is not that you click "Confirm" on the App, but that CCB and CMB complete a settlement operation on the central bank's reserve account. Without the central bank's system, this transaction will not be established in the legal and financial system.

Therefore, whoever has the account book authority of the clearing system has the structural dominance of the monetary system.

Understanding this, we can also understand a very realistic policy phenomenon today: Why are central banks of various countries promoting "Central Bank Digital Currency (CBDC)"?

Many people think that this is just to improve payment efficiency, or even to fight WeChat and Alipay. But from the underlying logic of "currency is a ledger structure" in this book, the fundamental purpose of CBDC is to re-establish the central bank's monopoly on the "ultimate accounting right" in the digital age.

In the original system, the central bank only keeps accounts for banks and the country, not directly for individuals. The design of CBDC is to allow the central bank to have a ledger for all people - everyone can open an account, deposit money, and transfer money directly in the central bank system, bypassing commercial banks and payment platforms.

This seems to be an improvement in payment experience, but in fact it is a change in the clearing authority structure. CBDC is to further sink the right of accounting from "between banks" to "between users", so that the central bank can master the confirmation right of "every micro-transaction".

Bitcoin's positioning

Speaking of this, we can more naturally understand why Bitcoin is regarded as a "challenger of the monetary system".

Its essence is not just the creation of a new asset, but the proposal of a decentralized ledger structure, which is a fundamental response to the question of "who will keep the accounts".

The original intention of the Bitcoin network was not to allow everyone to use it as change, but to establish a value recording system that does not rely on central institutions, does not require trust in third parties, and can be verified by everyone. It attempts to answer a question: If we do not give the right to record accounts to the central bank or the government, is there any other solution?

The answer is blockchain.

In the Bitcoin system, every transaction must be broadcast to the entire network, and every full node can verify whether the transaction is legal, without relying on banks, central banks, or platforms. This is not "deregulation", but "decentralized accounting rules".

The author did not over-exaggerate the status of Bitcoin in the book, but pointed out very calmly: As the first-layer currency, the significance of Bitcoin does not lie in whether it can become a "global universal currency", but in that it has built a clearing structure that does not rely on national credit.

You send a transaction on the chain, and as long as the network confirms it, it cannot be revoked, tampered with or rejected. This "final settlement" is precisely the ability that the central bank clearing system has long tried to monopolize. Bitcoin broke this monopoly and made "finality" a consensus result of an open protocol.

On this consensus ledger, the second and third layers of structures also began to appear: for example, stablecoins issued with BTC as collateral, lightning networks as payment acceleration channels, and even "Bitcoin banks" to provide interest rates and deposit services. Bitcoin did not break away from the pyramid, but established its own set of pyramid structures.

This seems to be in the opposite direction of the CBDC we mentioned earlier, but it is actually responding to the same core question: How do we build a "currency ledger" that can be established in the digital world? One relies on the national system as a bottom line, and the other relies on network protocol consensus. They are not simply in a competitive relationship, but a game of two "logic of bookkeeping rights".

You can choose to trust the government and the bank, or you can choose to trust mathematics and code. And this is the fundamental reason why Bitcoin is important.

The compromise of stablecoins

Bitcoin emphasizes decentralization and the immutability of transactions in its design, so it sacrifices transfer speed and throughput. One block is created every 10 minutes, and it usually takes several minutes or even longer to confirm a transaction. The price of on-chain gas fees also fluctuates violently due to network congestion, which limits its possible use in daily small payment scenarios.

Real needs have driven the emergence of another structure: stablecoins.

Stablecoins are digital assets issued by centralized institutions and anchored to legal tender (mainly the US dollar), such as USDT (Tether), USDC (Circle), etc. Their emergence is not to "fight Bitcoin", but to make up for the problem of Bitcoin's "non-scalability" as a layer of currency, and to build a more convenient and less volatile payment layer on top of it.

Its price is clearly anchored, and traders can temporarily "hedge" when BTC or ETH fluctuates violently; it has a fast payment confirmation speed, which can be completed in a few seconds or minutes; it has a low transfer threshold, which is especially suitable for scenarios such as on-chain DeFi, games and cross-border remittances.

This is why stablecoins can quickly gain huge usage in the global crypto market. At the beginning of 2024, the daily transaction volume of stablecoins on the chain has exceeded tens of billions of US dollars, of which the circulation of USDT exceeds 100 billion, and it is the "actual substitute for the US dollar" in many emerging market countries. In countries such as Nigeria, Argentina, and Venezuela where the local currency has depreciated severely, many people trust a centralized stablecoin rather than their central bank.

If Bitcoin is "digital gold", then stablecoins are "bank deposits on the chain". They are essentially second-layer currencies: not unconditionally available assets, but your credit trust to a certain issuing institution. You believe that Tether or Circle has prepared an equivalent amount of US dollar reserves in a certain bank account, and the USDT or USDC in your hand is valuable.

Stablecoins are the continuation of traditional financial logic on the chain, using the real-world regulatory structure, corporate governance, and legal contracts to serve the circulation of encrypted assets on the chain. It is not a pure encryption innovation, but a "product of institutional adaptation."

In the monetary pyramid structure, stablecoins belong to the centralized debt currency in the "second layer" of the chain. The risk of stablecoins is that it still falls into the category of "counterparty risk". You cannot directly verify whether the 1:1 US dollar reserves really exist, nor can you control whether the issuer "freezes, reviews or refuses to pay" assets in extreme cases.

If you look at the trust structure, the differences between several mainstream practices are actually very obvious:

• CBDC is a form of currency issued by the state, accounted for by the central bank, and guaranteed by law. It does not seek to change the monetary system, but only moves the original accounting method to digital devices;

• Stablecoins are issued by enterprises and accounted for by centralized clearing structures. Their advantages are speed and docking with on-chain systems, but they essentially rely on the credit of custodian banks and companies in the real world;

• Bitcoin does not rely on any issuer or intermediary at all. It relies on an open and transparent network account to complete accounting, which is a "permissionless" underlying structure.

They all look like "coins", but they run completely different trust logics and account book architectures behind them. Which one you use is actually choosing who you trust and who will do the accounting. This is the real difference between stablecoins, Bitcoin, and CBDC.

Epilogue: Re-understanding "Money"

We think that currency is unified, defined by the state, and is the number on the account, the balance in the wallet, the bank card, RMB, US dollar and USDT. But after reading this book, you will find that currency is actually layered, structural, and a mapping of trust.

It is not just a banknote, but a "qualification" given to you by a system - which layer you are in and which type you hold represents who you trust, what you rely on, and which account your name is on.

So the future world may not be a world of "unified currency", but a world of "coexisting ledgers". Some people still believe in the country and use CBDC to pay water and electricity bills; some people believe in the market more and use stablecoins to do cross-border business; some people choose consensus networks and lock their value in Bitcoin.

These are not mutually exclusive options, but a new structure that is gradually unfolding: Technology has reopened the possibility of "who will keep accounts" and redefined "what is money".

When money is no longer issued by a single center, nor is it only printed on paper or stored in a bank account, but exists in the code, in the address, and in every verified block on the chain, what we are really facing is not the rise of a new currency, but the right to choose a new ledger.