All currencies have inherent value, including fiats (ability to pay taxes) and gold (industrial and aesthetic applications). Bitcoin changed the world with its inherent values of anonymity, speed, and accessibility. However, it now lags behind its competitors in these features, and unlike gold, bitcoin has no other practical use.

Understanding why this is true, and why it matters, requires a review of some fundamentals.

Why Money?

Money exists to alleviate the problem of needing a ‘coincidence of wants’ in order to exchange – a fundamental limitation of barter systems. For example, if a programmer wanted to purchase a tank of gas, in the absence of money, they would need to find a gas station that needed programming services so that they could barter a tank of gas’ worth of programming. It is very costly for the programmer to run into every gas station he sees to ask if they need programming services, and fairly unlikely that he will find a station that needs it.

With money, however, the programmer can provide programming services for a totally unrelated company, which then pays him money, which he can then give to the gas station in exchange for gas. There is no need for a coincidence of wants, so he is enabled to make these more complicated exchanges that undergird modern market economies.

Money is also a store of value, meaning it can transfer value across time. In a barter system, our example programmer would need to provide his programming services at the same time he received gas – otherwise, the neither party in the transaction would have a way of trusting that the other party would come through on their end of the bargain. This store of value can be for a few days, or for fifty years – money allows the programmer to save for retirement, ‘cashing in’ during his later years the value that he created earlier in his life.

Money as a Product

People like to say that fiat currencies have no inherent value, and that their worth is just a “shared illusion”, but this is completely wrong. The inherent value of fiat currencies is that they allow you to pay taxes, something you must do if you do not want to go to prison. So, fiat currencies save you from going to prison. This makes fiat currencies necessary for every person to acquire, which in turn makes them a convenient unit for all exchanges (not just taxation) within a country.

With such advantages, it’s no wonder that currency competition before cryptos was minimal! Nobody producing their own “money” could possibly compete with the advantages of dealing in dollars.

Historically, gold has had similar inherent value. Its rarity, resistance to corrosion, and fairly simple testability of its purity made it a useful way for untrusting trade partners (i.e. states) to trade with one another. Each state produced their own gold coins for international trade, which in turn were often used for taxation within the state. Again, if you do not pay your taxes, you will go to prison, and prisons in the year 1200 were even less pleasant than today. This was the inherent value of gold for states and for commoners.

Gold’s exchange value has dropped dramatically as governments have moved to dealing in fiat currencies of their own creation. Other inherent values of the metal, mainly industrial in nature, give it value, along with a popular affinity for gold as a material in jewelry and other fine products. This can make gold a useful product for investment, or a ‘store of value.’ However, gold is no longer a currency, as it is not a useful product in that way.

Bitcoin’s Value

Bitcoin launched in 2009 with a unique sales pitch: a currency that would allow instant transactions outside of banks and financial institutions, with minimal fees, and high anonymity.

It’s easy to see the inherent value to all of this. If one was a drug dealer or other anti-state actor, bitcoin provided you with the ability to exchange value over digital mediums. Previously, criminal enterprises, which are locked out of the financial system, had to perform large transactions with extremely risky and inconvenient physical cash transfers. Now, one could simply send bitcoin to a trading partner in a matter of moments. Online crime markets that centered around bitcoin sprang up quickly.

Likewise, other anti-state actors could perform transactions. This included persons living in repressive regimes, those dealing with border currency controls, persons seeking to avoid taxes, or those who are generally concerned about financial privacy.

Again, these are real and inherent benefits that gave bitcoin very meaningful value. Explaining this value did not require talking about the price trajectory of bitcoin or what financial institution might start trading in it. These are on-the-ground realities that made bitcoin useful.

Alternative Coins

Today, there are many competitors to bitcoin, all of which share bitcoin’s benefits. In fact, almost every cryptocurrency has, at minimum, bitcoin’s fundamental features.

Of course, network effects are strong, so it is not good enough to just be as good as bitcoin in fundamental features. If a cryptocurrency does not provide significant benefits over bitcoin, then the strength of bitcoin’s network – the development infrastructure, the miners, the organizations which accept bitcoin, etc – will overshadow the newcomer. Toppling bitcoin requires a currency that is significantly better in fundamental features than bitcoin.

An example of such a challenger is dash, which was launched in 2014 and offers significant fundamental benefits that bitcoin does not.

One of these benefits is completely anonymous transactions. Bitcoin’s transactions are publicly viewable through the blockchain, something that even an amateur cryptocurrency enthusiast like myself can view through easy-to-use websites. Dash’s completely anonymous and invisible transactions provide fundamental value to anti-state actors, a major market for cryptocurrencies – regardless of one’s feelings about these users.

Another benefit is the ability to send dash instantly. Bitcoin’s transaction times have slowed to a crawl in recent years, sometimes taking as long as an hour to clear a single transaction. This significantly reduces the exchange value of bitcoin. Furthermore, transaction fees have been on the rise, something that isn’t important to million-dollar drug deals but is crucial to using bitcoin to buy a cup of coffee. The only reason a coffee shop, which must pay taxes in dollars, will realistically accept cryptocurrencies is to avoid the high fees of credit and debit cards while retaining the digital advantages both provide. Once the cryptocurrency itself starts charging a transaction fee, however, accepting it becomes truly pointless.

Network effects will keep competitors such as dash at the perimeter for the time being, but fundamental advantages can’t be argued away by orthodoxy for long. Over time, more anti-state actors will begin using more highly-anonymized and rapidly-transacting currencies like dash, as it protects their businesses and their lives. As more economic actors are equipped with dash, it will make more sense to accept it for smaller and smaller transactions, from property purchases, to cars, to the eventual cups of coffee. The fast transaction times and low transaction fees will ensure this gradual acceptance for smaller and smaller transactions.

Bitcoin’s future

So, is bitcoin then the “gold of cryptocurrencies”? Will it remain as a legacy product, providing a store of value for investors who want a safe harbor?

Probably not.

Unlike gold, there are no industrial applications for bitcoin. Bitcoins are not resistant to acids or especially useful for conducting electricity. The code that makes up bitcoin’s blockchain is not specifically more resistant to physical corrosion than any other code.

Likewise, bitcoin has no (apparent) aesthetic value. Nobody one hundred years from now will be wearing jewelry made out of bitcoin, and they won’t be eating from bitcoin-gilded silverware and plates.

Gold is valuable because of its inherent properties and its aesthetic beauty. Its major inherent property was displaced when governments changed their preference for taxable currencies, but its other inherent properties remain.

Bitcoin was able to best fiat currencies in many ways, a technological revolution in money that was extremely exciting to witness. However, technology is a double-edged sword, and it is now cutting against bitcoin in the same way bitcoin cut against fiats. Everything bitcoin has done, Dash can do better, and what’s worse, there are no remaining inherent properties for bitcoin.

The mania surrounding bitcoin at the moment cannot last, because the fundamentals are not there. Articles in the Wall Street Journal and acceptance from the Chicago Mercantile Exchange are not fundamentals, and they will not affect, in the long-rung, the currency that people on the ground use in order to exchange. From illegal arms deals to coffee, dash beats bitcoin in every way.