Tuesday, November 19, 2013

Fiat, Gold and Bitcoin

About 2 months ago, when Bitcoin was about 150 USD, I had discovered it for myself and was asking a friend of mine if he was interested in starting a local or regional mining pool. That would mean that we would get a cut of whatever mining happened on our watch. That never really happened. I just read news that yesterday Bitcoin popped to 900 USD at one point of time. It opened at 500, went up to 900, plunged to 600 and went back up to 700.

Honestly, I do find the digital currency quite appealing in many ways, but I have some major gripes with it.

Firstly, let's compare it to gold. The pros of BTC is that is more divisible, easier to transport and transact, as well as convert to currency of choice. However, the cons of it is that it is digital and the main issue to me, it has no intrinsic value.

It's value comes only in people's willingness to trade with it. It has to be simple, used for the masses, pretty much all the traits that any modern day currency has. I do not believe that this will become a thing because as simple as it may be, it seems complicated. The awareness of BTC is so low, as well as the mass adoption rate. I can't foresee how anyone over the age of 30 would be willing and able to securely store some of their wealth and transact in it on a frequent basis.

Next is it's intrinsic value. From the logical perspective, it is pretty much as good as fiat currency, with the only difference that more can't be produced... eventually. Putting aside the fear that this digital currency cannot confirm that there will never be more coins in the system than a certain amount (which would make it fiat), where is it value of it in itself?

At least precious metals like gold and silver have uses. They are rare and unique in a physical tangible way that can be compared to the environment and surroundings. They are long term symbols of wealth and decoration. They also have industrial uses because of their elemental properties. These metals have the dual use of being both currency, as well as materials.

For these reasons, I firmly state now that I see value in BTC as a means of online, secure transactions, but I do not seeing it massively rising in value and usage and preserving that value. There was too much time for early adopters to have cornered the market, it is so volatile, and it seems that everyone in it is speculating. Mass adoption won't occur, because people would feel that the market is already rigged and there are other available digital currencies also to choose from, which actually may have superior properties to BTC. BTC is just the most popular and mainstream digital currency because it is one of the oldest. The whole thing still gives me a gut feeling that something wrong. It feels like a global pump-and-dump penny stock.

I do believe that in my lifetime I will see precious metals surge forth in value. It's hard to be patient watching it get monkey hammered down on any news.

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