Alas, cheap transportation and industrial era tools greatly inflated them and often made counterfeiting easy. Validation lore wasn't up to that challenge; secure validation became too expensive.
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Exactly, why would anybody hold BTC IOUs at par when they are riskier than the real thing. BTC credit will exist, but I don’t see it circulating as money, it’s economically irrational. This was only possible with gold because of its greater friction.
Gold's biggest flaw was difficulty of validation. That's why we ended up substituting coins for jewelry, and eventually bank note IOUs for coins. Coins were a semi-reliable way to outsource validation, and when it became too easy to counterfeit coins we switched to bank notes.
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Is it the problem of validation or counterfeiting that it creates a lemons problem and therefore increses transaction frictions from information asymmetries or because it changes the supply of money if undetected?
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It's mostly about transaction friction.
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And note that coins only made validation cheaper at the cost of introducing trust. This trust was often violated with debasement as a legal form of counterfeit.
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Debasement was "legal" when the mint was a state monopoly with sovereign immunity from prosecution for fraud. Competitive private silver and gold mints, where allowed, were subject to common law and were highly trustworthy. Like Engelhard, etc., are today.
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Still vulnerable when used at retail to counterfeiting, though, taking advantage of the difficulties involved in assaying metals during retail transactions.
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I am a bit confused. Historical evidence proves your point that gold was difficult to verify, but with a simple device like the one below I see rather easy to verify a standarized coin (specially before Tungstene was discovered)pic.twitter.com/Vral3pIvIJ
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Verification was not the sole, and in many cases not even an important, motive for the rising popularity of bank money relative to gold coin. Gold was simply less convenient than notes and transferable deposits--the last of these also bore interest.
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"Less convenient" than bearer notes how? More specifics needed.
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Larger gold coins were bulky; small ones were easily lost. In Scotland and Canada and other past arrangements where people were free to choose between the paper notes of private and largely unregulated banks and gold coins, coins almost completely disappeared from circulation.
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That is very interesting. What about traveling merchants or business done at a distance. Didn't that also create a need for bank notes?
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