Perceiving Bitcoin as Digital GoldMay 18, 2019
The concept of value is almost always at the core of any bitcoin discussion that goes on for a long enough time. This means that even when people are trying to figure out some relatively recent thing about this cryptocurrency, chances are that they will slowly get to a position where they take a hard and long look why is BTC valuable in the first place.
In the modern age, the notion of value is both complicated and apparently getting more complex each year. What began in the late 19th century with the mass introduction of bonds and stock, slowly morphed into a system of economies where the level of debt is the actual reference for a country’s economic potential.
In that setup, the idea of gold, that precious metal that keeps having a strong appeal in the mind of the general public, is still a frequent guest. More precisely, people continue to try to make parallels between it and cryptocurrencies. Often, these are completely senseless and more than regularly showcase that people completely misunderstand blockchain technology that props up the digital currency. However, there still might be some important parallels between gold and bitcoin, especially in regards to the history of this precious metal and the future of the same cryptocurrency.
Frank Holmes Take on Gold
Frank Holmes is US Global Investors CEO of asset management and he recently provided his take on bitcoin and the crypto market a whole. In particular, he touched on the notion of gold and its previous uses in the history of finance. Holmes believes that digital currencies are quickly becoming what is basically an alternative asset class and this makes them more than similar to the precious metals, gold in particular.
But, he also noted that there are some issues when cryptocurrencies are seen as store-of-value assets. This is where Holmes differs from many in the pro-cryptocurrency camp – he is a strong proponent of the use of gold as a keeper of permanent value. While it might be a bit of a fringe position inside of the crypto community, the belief in gold is anything but new across the board. In fact, some groups see gold as the ultimate store of value that might one day become the very essential financial tool not just for security, but very survival.
A most prominent group among all those who see gold as crucial are the individuals and groups fearful of some kind of major problem hitting the modern world. The same problem is usually described on a catastrophic level, especially when it comes to issues that have a global impact.
This could be anything that is man-made or natural but shares a common thread – the utter or significant destruction of the modern systems of government and finance. In that setup, being that the modern economy is so intertwined, technology-based and disconnected from any practical, physical value, the modern currencies will collapse.
It will not matter whether the same paper money is actually present or represented on banking accounts that will no longer be accessible – in any case, current regular fiat wealth will be rendered useless. In those moments, the prepper mentality stipulates, gold will be the ultimate carrier of value like it was for so many centuries before modern currency got set up in the way it functions today.
Those left without gold will be at the mercy of barter and have no way of storing value over a prolonged period of time. Those with gold will be the new wealthy class that would be able to easily procure services and goods from anyone, being that the prepper mindset sees gold as something all would universally agree upon as the immediate replacement for worthless fiat currency.
Doubt within Doubt
While the basic premise of the prepper mentality sounds completely reasonable, there are plenty of problems with the notion that the whole world would switch to gold if the current financial system disintegrates. First, what about other precious metals, especially silver? It too should retain its value and it is hardly ever mentioned. The same goes for precious stones and many other rare minerals that are valuable because of their rarity and use in jewelry.
Should people create stockpiles of jade stones or silver coins? Sure, the prepper mentality stipulates that these too would survive a thing like EMP or some other catastrophe. With it, the financial system would disappear just as easy as esports tournaments. Both and all other digital ventures would either vanish or become so inaccessible that they cannot be used. But, what about hard liquor which is also both non-perishable and unlike gold, it offers actual practical use.
Finally, the same goes even further for firearms bullets. These will be incredibly valuable in a social structure that becomes violent and chaotic. This would mean that it would be smart to have all of these things in a prepper bunker ready for the worst-case scenario. In that setup, why is gold any different? If anything, a case of bullets or vodka would be more sensible than gold in the same value – after all, the first two can be used for other things as well. Clearly, placing gold on some kind of financial pedestal, even during incredibly uncertain times is not the universal one-size-fits-all answer many gold-proponents hope it to be.
Even though the concept of all-powerful gold is somewhat lacking in strength, Holmes is right to point out that a long history shows that gold will not be easily discarded. He was especially hurt when referring to Millenials and the need for some of them to rebel against everything. Instead, he said that even in the more recent past, more precisely during WW2, it was gold that allowed the British Empire to save its monetary potential and exchange it, through Canada, for US arms and support.
This is undeniable and likely that it will prove itself to be true, in some shape or form, in the future as well. But, in spite of this, for individual users, gold is rarely a feasible fallback and it is certain that bitcoin is not digital gold. Instead, it is a completely different class of assets with its own benefits and challenges. Looking at it differently would be a simplification that could end up hurting the same cryptocurrency owners in the long run.