Cryptocurrency and Gold, how can this not be a bigger hype?
Backed-by-gold cryptocurrencies are not very popular, yet there are rumors about many countries studying how to start their own backed-by-gold-crypto.
According to Noah Smith a Bloomberg writer, cryptos could turn out to be like gold, and predicts this as one of the outcomes for cryptocurrencies, since it does not have a settled fate yet.
“Bitcoin as Gold: Fiat currency remains the main unit of exchange everywhere except in a few extremely dysfunctional economies like Venezuela’s. But Bitcoin’s market capitalization remains substantial, and it rises in value over time, occasionally experiencing large bubbles and crashes.” – Noah Smith from Bloomgerg.com
Gold was first used by humans back in Ancient Egypt times, around 5,000 years ago.
It is best known for its use to make jewelry, and is not considered an investment, but a way to store wealth, literally.
Gold does not have an intrinsic value because it is considered money. Money has no intrinsic value.
Gold is difficult to be mined, has high fuel costs, and demands secure storage, which is also pricey.
It has a limited supply; we do not know how much more gold there is to be mined and it is considered a rare metal.
But could gold be compared to cryptocurrencies? Yes.
Could cryptocurrencies be backed by gold? And yes.
Gold is tangible and cryptos are digital, but both are considered units of account or medium of exchange, acquiring its value from people “whatever people believe it should cost”. Prices reflect the confidence of investors. And they are both mined even though in very different ways.
Currencies should be practical and functional, according to ancient Greek philosopher and scientist Aristotle.
He also said currency should be easily divisible, fungible, durable, portable and resistant to counterfeit.
Which leads me to a question, without trying to discredit gold, how practical and functional is gold?
As it is very difficult to store, relocate or transfer. It´s heavy and expensive to have, in other words, to choose to store your wealth in gold, it´s like you must have money to have money.
Anyways, gold is still money, indeed it is, and that is the main reason it doesn’t have a yield. Gold doesn’t generate income, as stocks and real-estate. It is mainly a preservation and conservation of one´s wealth.
Looking at the History of American dollar we see that it´s start was backed by gold, and eventually the dollar went its own way after the Bretton Woods Agreement.
What is the ‘Bretton Woods Agreement’
The Bretton Woods Agreement is the landmark system for monetary and exchange rate management established in 1944. It was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Under the agreement, currencies were pegged to the price of gold, and the U.S. dollar was seen as a reserve currency linked to the price of gold.
Basically, what this agreement means is that now USD is backed by nothing.
When this agreement came into place many abandoned gold for fiat currency. The problem is fiat always fails just take a look at history.
They say history always repeats itself, and if so, we can certainly count on fiat currency to fail. This is one of the reasons we agree with the saying that cryptocurrency didn’t come to replace fiat, as fiat is destined to fall and fail on its own.
Gold has always been the salvation in hard times. Fiat fails and people tend to run back to gold.
And what is very interesting is that when you look at the history of gold, you will see that it indeed does well under pressure, recession and depressions. It survives when all else goes down under.
Gold is safe, steady and slow.
Now, all of this is valuable information because just as gold was the back bone for many fiats as with USD, could it also give cryptocurrencies any level of stability? Maybe!
In 2017, When Bitcoin hit the price of gold, or was equivalent to gold by the ounce price, it called the attention of gold investors who tried to come up with a backed-by-gold-digital-coin called E-gold back in 1995, but according to GOLDESCAPE.NET it did not work because of many security issues. And for that reason it was shut down.
Eventually, these issues were solved with the invention of blockchain which brought to the table the security needed to back a digital coin.
The proposal or the basic concept of a crypto backed by gold is that a token would have a certain gold value.
1 token = $ for oz. of Gold
The token price would not be based on the cryptos market per se, but instead it would be stabilized by the price of gold.
So, even at the lowest price a crypto would always equal to the present actual gold price rate.
Certainly a complex scenario, when you start thinking about whose going to have the gold? Secured where? By whom?
But the main idea is, because gold is a safe market it seems to give cryptocurrency the hedge that it needs during its growth period until it become less volatile and then (this is just an idea) it just might cut off business with gold as USD did.
After analyzing some gold enthusiasts, like the economist Jim Rickard and Peter Schiff, it was clear that the gold community doesn’t seem very fund of the idea of crypto.
And it seems as, it´s not the actual fact that it works, but the ease of the project that seems to bother many people from the gold and even fiat community.
A fight between traditional investors and millennial minded investors.
With all due respect, even though none of the points made against crypto were backed by facts but mainly by opinions based on traditionalism, it was clear that it’s the actual EASE of cryptocurrency blockchain that bothers the gold community.
It can’t be that simple, it won’t work. – they make it seem.
The simplistic idea seems to be a target for many; the feel in the air is that somehow they feel threatened “how come we didn’t think of this before ourselves?” “How come we have been going through such a hard process for thousands of years, and now something just shows up with such ease and so many people choose to believe in it?”
Cryptocurrency blockchain carries and ease to it indeed, but it did not just come out of thin air, the technology behind is truly hard work.
Gold has gained its value the same way cryptocurrencies are acquiring their value now, true believers investing in it.
People believe it has a value and so it does. So whether liked or not they end up falling into the same category in many ways, but at the end of the day cryptocurrencies are much easier to “carry along” transfer and store, period.
With cryptocurrencies you can securely transfer value within minutes or even seconds from one point on earth to the other upon a strong, fast, and secure platform.
Gold is a “legend” in the financial world. We believe in gold, and do not believe cryptocurrencies have come to replace it in any way.
They could easily walk side by side; communities should hold hands and certainly get to know each other better, without prejudice.
In the future, if gold can no longer be mined it will only become more powerful, precious and rare. Gold is ancient good.
And so are some contemporary cryptocurrencies.
If cryptos decided to truly merge along with gold in the near future we might all benefit from it.
We want to know your opinion about this topic.
Let us know in the comments.
The Winco Team