Scarcity Drives Bitcoins Value
In a cashless society where the use of notes and coins is disappearing quickly, we are nonetheless confident that the digital number that is written on our bank statement is worth something. Most currency in that sense is already digital today. But digital currency and cryptocurrency are not the same thing.
Digital currency is simply the digital representation of a national fiat currency issued and controlled as legal tender by a central bank. Cryptocurrency on the other hand is usually created privately in a securely encrypted blockchain network where the value is simply based on supply and demand. Gold, however, is mined and its value is based on supply and demand.
Both Gold and Bitcoin are valuable owing to their scarcity. We dont know how much gold there is on Earth, but we know that there will only ever be 21 million Bitcoins. On the contrary, nobody knows how many US Dollars there will ever be. In the latest round of stimulus another US$3.5 Trillion will be added to the money supply .
But wasnt gold supposed to be our inflation-hedge that was independent of governments, something we could always turn to in times of volatility?
X8c: A New Kind Of Stablecoin
Gold and fiat back this sharia-compliant cryptocurrency, as determined by AI software. And X8C could more into the global marketplace, including the Middle East, with sharia-compliance.
Pegged to multiple fiats and gold, X8C offers a new solution to the problem of stablecoin volatility. Recently, the price of the Winklevoss stablecoin climbed as Tether plummetted.
Bitcoin Doesn’t Need To Be Backed By Anything Tangible To Be Valuable Like Fiat Currencies Much Of Its Value Derives From Consumer Confidence
- Despite the common misconception that Bitcoin has no value, its market capitalization of around $190 billion suggests otherwise.
- Like the US dollar and most other fiat currencies, Bitcoin isn’t backed by physical assets in a vault, but instead by its value as a mode of payment.
- The maths underpinning Bitcoin’s blockchain contributes to its desirability in a number of ways.
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….
Donald J. Trump
But now that Bitcoin is thesixth most valuable currency, it does beg the question… What exactly is it backed by?
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Is Cryptocurrency Bitcoin A Better Asset Than Gold For Hedge Against Inflation
3 min read.Asit Manohar
- Batting in favour of cryptocurrencies, the expert mentioned 4 features that make bitcoins a better asset than gold
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Cryptocurrency vs gold: Precious yellow metal and bitcoins are two assets that are independent from the government. Both gold and cryptocurrencies are limited assets and hence prices of both of these assets appreciate or depreciate based on its demand and supply. As cryptos have been giving stellar returns amid uncertainty in regulations, there is a debate going on whether gold would lose sheen in race against bitcoins.
Speaking on similarities between gold and cryptocurrencies Manoj Dalmia, Founder and Director at Proaasetz Exchange said, “Like gold, cryptocurrencies are also a limited digital asset as there will never be more bitcoin released. This makes bitcoins similar to gold in terms of scarcity. Unlike fiat money, where bank deposits can be depreciated due to inflation controlled by the government, both bitcoins and gold are independent from the government.”
Vinshu Gupta went on to add that Cryptocurrencies median annual RoI is 408 per cent. “When we compare it with 5-7 per cent rate of inflation, bitcoins not only hedges your position but generates wealth for generations to come,” Vinshu Gupta said.
What Currencies Are Still On The Gold Standard
Now Switzerland has dropped the gold standard, there are no currencies that are backed directly by gold. However, this doesnt mean that gold or other commodites are irrelevant to their economy or currency.
There are plenty of examples of countries where their wealth and currencies are able to be tracked and correlated to a specific commodity or multiple commodities. For example, The Australian Dollar is sensitive to changes in iron prices as they are the largest exporter of iron worldwide. It is for this reason that despite not being backed by their commodity asset, iron, it still has a significant effect on their currency.
Many countries have a currency that is closely linked to oil with currency and economic fluctuations coinciding with oil price changes and availability. These include large economies such as Canada, Russia, Columbia and Norway. These are all large exporters of oil, a commodity with a high value in todays world that relies upon it as a resource.
Countries with large reserves of crude oil can track the demand and rise and fall of these resources alongside their currency. When oil prices drop, oftentimes so does the value of the currency. This correlation between commodity and currency is interesting as whilst they have an effect on a currency that can be seen and tracked they are not directly backed by these commodities.
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Is Cryptocurrency The New Gold
Bitcoin, Ethereum, Dogecoin, Alt-Coins – words like these elicit hysterical reactions. People seem to either be passionately optimistic or vehemently skeptical about cryptocurrency. And even though a lot of controversy surrounds cryptocurrency, most of the crypto commentators are beginning to change their tone. This begs the question: What happened and why are they starting to take cryptocurrencies seriously?
Cryptocurrency is certainly becoming more mainstream. In response to customer demand, Vast Bank in the U.S. has partnered with Coinbase to enable people to perform cryptocurrency transactions from their bank account and we’ve seen a leading crypto exchange collaborating with a major cloud ERP provider for digital accounting solutions, I get the distinct feeling that cryptocurrency is set to play a significant long-term role in the worlds financial system and in our lives.
On the other hand, it was only recently that some of the most respected names in finance condemned crypto, calling it a gambling device, having no value, having no credibility, evil, rat poison and so on. One very respected investor even said he prefers bananas to Bitcoin, because bananas have value.
I must confess that I used to agree with them and saw crypto in much the same way.
Why Are Currencies Backed
Currencies are backed to ensure that they maintain their value. Currency is a necessary tool for running a government, but many governments have faced unstable currencies. This makes it difficult for citizens to use the currency effectively and hurts economic growth. A government can print its currency indefinitely, but the more it prints the less scarce the currency becomes, resulting in inflation. A backed currency can be protected from inflation, but the government will need to acquire more of the backing asset in order to maintain a credible backing.
To combat unstable currencies, a government can back their currency with another asset to reassure citizens that it will retain its value. However, this method will only succeed if citizens trust the promise of the backing.
If holders of the currency begin to doubt that the government has enough of the backing asset to ensure the promised exchange rate, then the currency may deteriorate in value rapidly as individuals attempt to exchange their currency for the scarce underlying asset.
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The End Of The Gold Standard: The Last Bastion Falls
Switzerland was one of the few places to buck this trend and maintained use of the Gold standard right up till May 1st 2000. Remaining neutral during World War 2 made it possible for Switzerland to keep hold of its gold reserves and even to profit during the war to stockpile more ensuring it had a large stock of gold when compared to the size of its population.
Even during and after the great depression, the US managed to keep hold of the majority of the worlds gold reserves. In 1944, an agreement was put in place that set the exchange rate for all currencies and gold and it was at this time the US was able to price the Dollar against its reserves. With the US holding the majority of the worlds gold supply it became easier for most of the rest of the world to start to price their currencies against the dollar instead of gold. The result of this was that currency was no longer tied to the price of gold but to the price of the dollar. The US dollar rose in value and became the standard world currency used.
This presented major issues, as with such an influx of demand for dollars, and eventual pegging of currencies to the dollar, the value of dollars drastically outsized the value of the USs gold reserves, which gives you the current funny-money nonsense system we have today where The USs debt can be nearly unserviceable without issue and the FED can create most recently over 100 billion dollars a day without the dollar evaporating.
Jumping On The Crypto Bandwagon
It does not take too much research to see that small to medium-sized enterprises, family-run businesses, corporates, asset managers and more, are all investing in the crypto market. There is, however, the hurdle of learning new terminologies and understanding a new process. This can seem daunting, and is certainly a barrier to entry for some. However, this is not a reason to ignore what could potentially be an immensely fruitful asset pot.
Professionals must now start to change their perspective on cryptocurrency, particularly in relation to what institutional investors consider to be an asset class, and adapt processes to enable investors to deal with cryptocurrency more effectively. Gone are the days of solely dealing with traditional assets.
There are an enormous number of crypto assets now available and certainly the Covid-19 pandemic appears to have played a key role in driving increasing demand from both retail and institutional investors.
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The Source Of Value: Bitcoin Vs Fiat
Up until relatively recently , most ordinary paper currency and coinage was directly redeemable for gold. This is because many of the wealthiest countries followed a monetary system known as the gold standard, which saw governments lay down a fixed exchange rate for national currency and gold. As part of this system, countries needed to keep sufficient reserves of gold in their vaults to 100% back their circulating currency supply, ensuring that people could always exchange their currency for gold if they chose to do so.
However, this also constrained the economy in the middle of the Great Depression, since governments were unable to simply source more gold to expand their money supply and stimulate spending.
The system was abandoned by Australia and New Zealand in 1929/1930 Canada, Germany, and the United Kingdom in 1931 and the United States partially left the standard in 1933.
It wasn’t until 1971 that the United States fully left the gold standard, after then-President Richard Nixon ended the interconvertability of the US dollar into gold, thereby nullifying theBretton Woods system and essentially ending the age of the gold standard.
So while fiat currencies are not formally backed by anything, we tend to buy into our fiat currencies with the confidence that they will be accepted elsewhere in exchange for goods and services. Essentially, our confidence in fiat currencies generates purchasing power, and therefore value, for fiat currencies.
Is Bitcoin A Gold
Bitcoin is not a gold-backed cryptocurrency, though it has become a popular way to buy gold in recent years.
As Bitcoin grew in popularity, coin traders were allowed invest and exchange easily, creating more opportunities for digital currency enthusiasts to invest in gold-backed cryptocurrencies and other altcoins.
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Cryptocurrency Pegged To Fiat And Gold
For every token, X8 AG, the company behind it, has stored the equivalent amount in fiat and gold in a bank account, according to the companys whitepaper. Theoretically, this means that someone who owns this cryptocurrency can exchange it for another form of currency without a fee.
According to X8 AG, they have these funds secured in Swiss bank accounts. The gold backing X8C comes from Swiss gold reserves.
Xrp Xrp Is Now Backed By Gold
XRP XRP Is Now Backed By GOLD!
In this video Ripple is discussed. See the XRP News, what XRP is, and how XRP is now backed by gold. Ripple is a real-time gross settlement system, currency exchange, and remittance network created by Ripple Labs Inc., a US-based technology company.
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Our Understanding Of A Traditional Asset Has Changed
An asset is anything of value or a resource of value that can be converted into cash. Traditionally, an asset can often generate cashflows: stocks provide dividends, bonds provide coupons, loans provide interest. However, there are assets that do not really produce cashflows but are still considered as an important asset classgold, wine, and art are some examples. Gold has long been considered an important asset class. It has very limited industrial usage and does not really generate cashflows it is only collective thinking that gold is valuable that makes it so.
In fact, this also applies to any fiat currency. After all, money is only a credit that a currencys user gives to the issuer. For a currency to thrive, trust is the most important factor. The issuers of fiat currencies are sovereign entities which are deemed to be the most trustworthy. If there is a currency or economic crisis that means the people do not trust the government, the value of the fiat currency will drop significantly.
So an assets value will depend on the collective belief and trust of the people dealing with it. This is still an early stage to conclude that investors believe and trust in the value of cryptocurrency, but the trend is definitively positive.
Throughout the course of history, we have become accustomed to recognizing traditional asset classes. Many investors regard cash and equivalents, bonds, and stocks as conventional financial investings big three.
Cryptocurrencies That Arent Gold
While researching and updating this list I kept finding cryptocurrencies that sound like they are gold-related. The biggest naming misnomer is Bitcoin Gold , which is a fork of the Bitcoin blockchain and has no gold attached to it.
At least Bitcoin Gold isnt pretending to be linked to the value of gold, just as a Visa or Mastercard Gold Card isnt pretending to be made of gold. Things start getting murky with Ethereum Gold . Ethereum Gold is built on the Ethereum blockchain and was launched in October 2017 as an airdrop to crypto forum readers. The website says that its asmart-contracts governed ecosystem that applies blockchain technologies using the value of GOLD. There is no other mention of how it is connected to the value of gold.
Counos is no longer offering Counos Gold as an asset-backed cryptocurrency.
Crypto Bullion has been trading since before any gold-backed crypto got started, but it doesnt have any bullion backing. It was launched to function as a store of wealth and emulate the properties and supply of gold.
GoldCoin is Digital Gold and not backed by physical gold. It was founded in 2013 and is a decentralised open-source cryptocurrency forked from Litecoin.
GBCGoldCoin is a Russian cryptocurrency and is not backed by gold coins.
Gold Bits Coin project is no longer gold-backed.
CryptoGold is a crypto mining platform.
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The True Value Of Money
The first time that paper money was used in China, more than 1000 years ago, it was also met with confusion and widely condemned. Just like crypto today, it was not the government that originally invented it. When making large coin-based transactions proved difficult, merchants came up with a mechanism where pieces of paper had text inscribed on it indicating its value. Transactions were completed by handing the paper-note after which parties visited warehouses where the exchange of coins took place.
Incidentally, the warehouses that stored large volumes of bulky coins became the first banks. As paper grew in popularity, the government outlawed it and surprisingly thereafter, issued its own notes as legal tender and the worlds first real national paper money was born.
Interestingly, a thousand years after those original paper notes were banned, China has now banned cryptocurrencies. Could history repeat itself with China doing what it did a millennium ago – this time developing a regulated cryptocurrency? El Salvador on the other hand recently made Bitcoin a legal tender. It goes to show how extremely different the views of cryptocurrency can be and for this reason, are we in the early stages of a reinvention of money?