You may have heard of the term hard
money! Now hard money can be described as
a physical form of currency where the
coins themselves have some value. Gold,
silver, platinum have been historically
used as rare metal forms of currency and
when we flip through the pages of
history we find that hard money has been
used throughout millennia and has held
its value. The civilizations that have
withstood the tests of time like the
Roman civilization, the Greek
civilization & the Egyptian civilization
all used hard forms of money like gold
and silver. And they even use these forms
of currencies to trade with one another.
Now hard money can be contrasted with
soft money. Soft money is things like
credit or fiat currencies that actually
don’t have any value at all. Value is
given to fiat currencies or soft money
by the decree of a government or a
strong institution that is behind this
currency; and it’s often the same
institution that will be publishing,
printing or generating these forms of
currencies and distributing it to either
the government directly or to the people
or the economy. Now a lot of people will
tell you that gold as a hard money
derives its value intrinsically. That
there’s something special inside of #Gold
that gives it some value. But do be aware
this word “intrinsic” value means
absolutely nothing at all. Nothing has
intrinsic value! The value of anything on
this planet comes from societies, peoples,
nations or groups of countries coming
together and saying that we’re going to
give this thing some value. It is this
BELIEF (in value) that gives anything value at all
in modern economies. The properties of
Gold that are believed to give it so
much value over such a long period of
time are its scarcity, its fungibility,
its divisibility, its durability and its
transferability. And on top of that, I
would also say that a lot of people
believe that Gold is an uncorrelated
asset with the rest of the world’s
economies. If you’re an individual, then
you can store a lot of money in gold in
relatively low amounts of weight. If you
go to almost any country in the world
they are most likely accept gold as
something valuable and you can exchange
it for food.
A limited amount of gold is found every
year by people around the world and a
limited quantity of it can be mined at
any certain point in time so these are
the properties that give gold so much of
its value. But let’s compare these
properties to the properties of Bitcoin
and this is where things get interesting!
Now there will only be 21 million
bitcoins ever created. This is written
down in the code or in the software of
Bitcoin and until the software stays the
same it will not change. One more thing
to add is that there are so many
bitcoins (it’s estimated that three to
four million Bitcoin) that are already lost.
Currently we’re around the 18 million
Bitcoin mark so about 85% of Bitcoin
has been mined already, and there are
only 3 million bitcoins yet to be mined.
Now every 10 minutes only 12.5 bitcoins
are generated and these 12.5 bitcoins
are known as the coinbase – these are the
12.5 bitcoins that go to the miners for
securing the network and for producing the
hash rate that goes into making the
Bitcoin network more secure. So the more
miners there are the more secure bitcoin is.
Fungibility just means that if you pick
up a piece of Gold in Peru then it
should theoretically have the same value
as a piece of Gold in China, let’s say.
All bitcoins have the same value. As we
see capital restrictions in certain
countries there may be higher prices to
bitcoins in certain countries but that’s
only because money cannot be transferred
out or in of certain countries in the
world. India is one such example of a
country where severe capital
restrictions apply. There are limits and
there are checks – how much money each
person is sending out of the country of
India. That’s why we have seen that
the price of Bitcoin in India has been
higher slightly than the rest of the
world and there are similar restrictions
in China and other countries around the
world. As arbitrage happens and as
markets open up, eventually, the price of
Bitcoin should be exactly the same
around the world. If we look at
divisibility, each Bitcoin can be divided
into 100 million Satoshis just like
Gold can be divided into a limited
number of atoms most likely you’re not
going to be using the term Satoshi for
the coming few years but probably in the
next few decades when Bitcoin has much
higher value than it has today
the
Satoshi will probably be used more often
than it is today. This does not mean
that one Bitcoin can never ever be
divided into further smaller particles.
With layer two or possibly layer three
solutions in the future we will be able
to divide one Bitcoin into as many
number of Satosh’s or whatever they
will call it in the future as we want to.
Durability – as long as the internet lives
Bitcoin will live. There are over 9000
nodes in the world. There are billions of
dollars of mining equipment going into
making the network more secure and
stronger. Transferability – now granted,
transferring a Bitcoin might take 10 to
20 minutes at some points. Perhaps even
longer; perhaps even up to an hour if
you’re looking for five or six
confirmations but when was the last time
you transferred a piece of gold around
the world in less than an hour? Actually
when you look at the value of each
Bitcoin and the percentage that it takes
to transfer that Bitcoin to any other
wallet it’s actually relatively low and
although you might think it’s free to
transfer money from one bank to another
actually there are fees associated with
it. Bitcoin has nothing to do with
politics or the price of oil or all of
these things. Bitcoin is seen as an
uncorrelated asset to other securities
and other assets of the world and this
is one of the reasons why it’s been so
popular in recent times. Bitcoin can be
stored in Hardware wallets or paper
wallets. It can be stored on codes – 12
words or 16 words, these codes can store all
of your wealth! There’s almost an infinitely
lower amount of weight associated with
storing Bitcoin over storing gold. When
it comes to universal acceptability
we’re seeing more and more countries
legalize Bitcoin or authorise Bitcoin
trading, Bitcoin exchanges. More and more
countries. It started with Japan who
first legalized transactions in Bitcoin
and other countries are following
quickly. As more and more days pass,
more and more countries are accepting
Bitcoin as a form of investment if not a
form of currency. Now one more thing that
you should really be paying attention to
is that in the last month the price of
Bitcoin has gone up significantly along
with the price of gold. Now gold is often
seen as an asset that people buy in
order to store wealth during times of
uncertainty and bitcoin is taking over
this place as a more digital form of
gold. As something
that’s better than gold, something that
is more modern and something that can be
easily purchased instead of having to
buy a share of gold or to buy a piece of
coin of Gold which is very difficult
to dispose of. It’s very difficult to
take a piece of coin of gold and go and
get exactly the same money that you paid
for it. You have to carry the gold and
there’s always a chance of it getting
stolen. Bitcoin is much easier to get
through times of difficulty. As the value
of gold increased logarithmically after
an ETF was launched with Gold, the price
of Bitcoin will increase as well, and
once this happens Bitcoin will be seen
as a store of value. Bitcoin will no
longer be seen as a volatile asset as it
is today. Financial managers and wealth
planners tend to keep aside some cash
for their clients or some gold for the clients
so that they can buy shares or stocks
that have depreciated in value once a
recession hits the economy. If you
keep this in mind, there is always a certain
percentage of wealth that’s allocated to
cash or harder forms of currency and
that means that during the next
recession (that might possibly be around
the corner, maybe not) but when the next
recession hits the world, people will
flock once again like they have always
done to stores of wealth. And this is why
you should be doing your homework
regarding Bitcoin today when we’re not
going through a recession. And for all
the people that think that storing
wealth in the form of Bitcoin is not
safe and that it can be confiscated by the
government or stolen – just try walking
through an airport with a gold bar in
your suitcase.