Bitcoin is about to overtake Gold's Stock to Flow Ratio, and here's why it's important.

BTC has a current stock to flow ratio of 59.18%, as of this evening. Gold's Stock to Flow is estimated at around 59% in 2022, although it is a lot harder to truly calculate the percentage as it's not hard coded like BTC, and gold's flow changes each year. The calculation is simple, it is the current circulating supply divided by the added supply that year.

What is stock to flow, and why is it important?

Stock to Flow Ratio is a method of determining a currencies hardness. What is meant by this, is a currencies ability to withstand inflation and governmental influence. Hard money means that the means of gaining new supply of the currency should be difficult - it should require work of some sort whether that be physically mining the precious metal, or using computational hardware to decode an algorithm.

This is in contrast to Easy money. Easy money does not require hard work to increase the supply, such as Fiat currencies and the ability to print new money backed by nothing out of thin air. The supply is Easy to increase as it only requires a printing press to be turned on to print potentially (relatively) infinite amounts of the currency.

Stock to Flow is important then as it allows for a means of exchange to be used, and not lose the user value simply by holding it. It does not allow any centralised government or institution to extract value out of its holders by means of inflation (Looking at you, Fiat) and it decentralises the currency.

Why is BTC overtaking gold's stock to flow ratio a big deal?

For 150 years, Gold was the basis of the entire civilised world's currencies. Banks and countries would use receipts, redeemable for gold at any time, backed 1 to 1. This means no inflation past the normal supply rate of gold (Historically around 1.5% Per Annum). This period, from ~1770 to 1914 was called The Golden Age. The economic practice of backing paper money 1 to 1 was called 'The Gold Standard'. (This is of course not to say that the Gold Standard was infallible, all it took was for a government or supplier of said paper money to print over the ratio of 1 to 1 for the currency to fail - and this happened many times over the 150 years.)

It was only when governments in the first world war decided to take ownership of citizens gold and refuse redemption into gold, that the Golden Age ended. Governments then used this hostage situation to start printing money so the backing of gold was no longer 1 to 1, in order to extract wealth out of the populace via inflation, in order to fund the war. Paying in anything other than new 'Fiat' money was punishable by the state, and the world entered a new age of economics, The Centralised Age(TM). And that was the start of the financial mess we all find ourselves in now.

Now that Bitcoin has caught up to Gold's Stock to Flow, we are presented with a new, more reliable and transparent Gold Standard - but with a few big differences.

1. The majority of BTC does not lie in government hands.
2. The saleability of BTC is far greater and easier than Gold over distance.
3. The total supply of BTC is known, and hard coded.

This means that the world is now able to adopt a new 'Gold Standard' with the soundness and hardness that Gold has, without government control/stockpiles, without the need for paper receipts as an intermediary due to golds' low saleability over distance, and with a transparent and open source code. The centralisation of currency in governmental control has had its first real chance to be challenged in over 100 years, and personally I can't wait for the fallout.

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If you hadn't already noticed, I've been reading 'The Bitcoin Standard' by Saifedean Ammous, which I highly recommend. Some things in the book I don't see eye to eye on, but that's fine because the general theme is absolute gold (bitcoin?).