Opinion: Why won't Bitcoin become digital gold?

Source: Medium

Compilation: First Class (First.VIP)

Recently, many cryptocurrency companies and crypto believers have called Bitcoin "digital gold", and they promote Bitcoin as a substitute for precious metals. But is it worth thinking about? It turns out that the popularity of cryptocurrencies should still be considered before being named.

No matter how you look at real money, those are just subjective ideas. Whether you like crypto or a gold standard, there are always people who disagree with you on the best form of currency. Money is something most people believe in and can be used as a medium of exchange for goods and services.

Therefore, money is a kind of confidence. But this confidence is fragile: it is easy to lose and it is almost impossible to regain it. Throughout history, countless things have been accepted as a medium of exchange, feathers, shells, pearls, etc. Before being replaced by the next generation of successors, these commodities were the currency standard for civilization, government, and ancient tribes.

Gold is the latest form used as a commodity, and many people consider it the ultimate form, especially Austrian economists, but Keynesians don't think so. There is speculation in the financial community that the current fiat currency system is about to fail, and many expect that no matter what the next monetary standard will look like, precious metals will play an important role in it. The main competitor of the gold renaissance is Bitcoin. Due to mainstream media reports, the popularity of Bitcoin has continued to rise, driving one of the largest speculative bubbles in history.


Can Bitcoin be a safe haven?

Throughout history, gold has been the ultimate safe haven: a refuge for huge amounts of money. It was born during the neutron star collision period, and its survivability provides perfect storage value. However, Bitcoin has some flaws.

Due to its digital nature, it can be destroyed. Once your wallet is cleaned, hacked, lost or stolen, there is no guarantee that you will get your money back. It may even be a victim of victimless crime: Ask James Howell, who lost more than $ 80 million in property because he forgot his password.

The most important attribute of a safe haven is the ability to protect your wealth during financial crises, such as the bursting of technology stocks and the subprime bubble. Because everyone is too optimistic, when the situation starts to deteriorate, the safe-haven assets gradually become cheaper, and they will appreciate significantly in a crisis environment.

But Bitcoin is already expensive, costing $ 7,000 per coin, and the price of gold is only $ 1,500 per ounce (troy ounces). Why spend nearly five times more to protect your wealth when you know that gold is performing well in times of financial hardship? This highlights the problem of the title "digital gold": Obviously, in the current state, Bitcoin is not a safe haven, but gold meets all needs.

Evolutionary problem

What makes gold an incredible store of value is that there is only one type of gold in the entire universe, so to make Bitcoin an alternative to digital gold, there can only be one cryptocurrency.

With the exception of about 5,000 cryptocurrencies in circulation, it is only a matter of time before competitors replace Bitcoin's dominance. As the succeeding cryptocurrency gradually gains the largest market share, this will slowly lead to the depreciation of Bitcoin and eventually become a "legend" currency like the Zimbabwe dollar. But as another cryptocurrency could replace Bitcoin's successor, this vicious cycle of evolution will continue.

On the other hand, gold cannot be copied, modified or destroyed, and has been successfully used as currency many times in thousands of years of history. . The reason for not using precious metals today is not because of its basic principles, but because of the poor monetary policy decisions and interventionism we see in modern monetary theory, which has historically led to the decline of many civilizations, including the Roman Empire .

Since gold has no successor and Bitcoin has tens of thousands of potential alternatives, we cannot really see it as a positive factor for cryptocurrencies to be called digital gold.

Lack of availability

Imagine you have $ 50 worth of necessities for the next week in your shopping basket at checkout. When you open your Bitcoin wallet and try to make a payment, the payment processor rejects your payment. Not because you have no money, but because the price of Bitcoin has fluctuated significantly during a 10-second transaction, causing your money to depreciate to an unpayable level. The Bitcoin market is undergoing significant price fluctuations every day, so this cryptocurrency cannot gain availability outside the crypto world.

At the same time, the value of gold is tied to physical supply, which is growing at an average annual rate of 2%, so prices are stable. In the past, the price of gold has also experienced large fluctuations. For example, Nixon decoupled gold from the US currency, but they are rare, so gold can be used as a currency backed by currency.

Gold is one of the most commonly used metals, and this is nothing new. It is used on jewelry to increase overall value and the rarity of specific objects. In the electronics industry, every complex device (including multiple parts of a computer) contains tiny pieces of gold that serve as reliable electrical conductors and are even used to treat medical conditions such as rheumatoid arthritis.

Unfortunately, this is not the case for Bitcoin. Although it is the best medium for trading, it currently has no other purpose.

Reasons to be bullish on Bitcoin

In the future, crypto enthusiasts hope that Bitcoin will replace the US dollar as the new global reserve currency. Leaving aside unfavorable fundamental factors, it is speculated that the price of cryptocurrencies will soar in the financial crisis due to the fiat currency. The theory states that as governments begin to use fiat currencies globally, investors will be eager to convert their fiat currencies into bitcoin, resulting in a sharp rise in bitcoin prices.

But they forget one thing: in this case, fiat money loses all its value and becomes worthless. Due to the collapse of confidence, the currencies it supports will have no real value, because government bankruptcy is not a viable medium of exchange. What you are trying to convert your earnings into will be worthless.

Recently, a special type of altcoin is being established: a cryptocurrency backed by gold. Bitcoin may be a good medium of exchange, but it is still not a great currency, let alone making money in its current form. Therefore, as the world's most popular cryptocurrency, for Bitcoin to gain the prestigious title of "digital gold", it must combine revolutionary elements: distributed ledger, accessibility, and the connection to the precious metal itself. This unstoppable force will change the currency world forever.

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