The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World

Chapter 2 Understanding the Digital Gold Rush

You have to learn the rules of the game. And then you have to play better than anyone else.

—Albert Einstein

In January 1848, James Marshall, a foreman working at John Sutter's timber mill, found a piece of shiny metal in the tailrace. The shiny rock was poked, prodded, and pricked until they could determine that, lo and behold, it was gold! With this discovery the California gold rush began. Within three years, San Francisco went from an outpost of 200 residents to a boomtown of 36,000. Few knew it at the time, but American icons were being born; Levi Strauss and Wells Fargo are the most recognizable, but don't forget Studebaker and even the modern-day name of the city's football team.

The discovery of gold resulted in a rush to mine because gold was the metallic foundation of the U.S. dollar. It has not always been enough to back the U.S. dollar with the full faith and credit of the U.S. government. In 1848, the United States was in the childhood of its growth to superpower; it was not clear that the full faith and credit would be around in the future. Of course, the United States was not the first country to adopt the gold standard. The shiny metal has a 5,000-year history as a medium of exchange. But why? After all, gold is nothing more than a rock—but it's a special rock.

Gold has one unique quality that makes it popular as a currency: density. Gold is one of the most dense naturally occurring elements, and in fact it is ...