Bitcoin and Ethereum can be seen as the digital versions of gold and silver, as they are both valuable and have a lot of potential. In the last year, you have been able to invest in Bitcoin through an IRA or 401k, like you would with precious metals. We examine the eerie similarities between the two largest cryptocurrencies and the two long-time champion safe haven precious metals.
Bitcoin
Bitcoin is a digital currency that was created around a decade ago, and it started the revolution of other digital currencies. It debuted in 2009 and changed the landscape of currencies and safe haven commodities forever.
As of 2017, there are now over 500 different cryptocurrencies to choose from, showing how successful the original pioneer in the digital currency space has truly been. Bitcoin is still the king of digital currencies, despite attempts by other currencies to unseat it in recent years. Bitcoin deserves respect for its first mover advantage.
How Bitcoin is Like Gold
Bitcoin is similar to gold in many ways. Unlike fiat currencies, Bitcoin cannot be randomly created by central banks. The two commodity currencies must be mined.
Bitcoin is scarce in supply, similar to the precious metal gold. We are getting closer and closer to the day when all the bitcoins that can possibly exist have been created, as long as the protocol and programming of Bitcoin doesn’t change to allow for a larger supply in the future.
This makes Bitcoin a safe investment, like gold. Because Bitcoin and gold are both fixed supply currencies, central banks and commercial banks cannot simply manipulate and control them. Neither can they be arbitrarily issued.
Bitcoin As The New Gold
Gold is often referred to as the “precious metals equivalent of Bitcoin.” This is because the two assets have grown in value over the last few years. Precious metals and cryptocurrencies have a lot in common, including price. Bitcoin has evolved into the new gold for five reasons. Whether or not that was its creator’s original intention is irrelevant. These are:
- Both gold and bitcoin have prices that now average well over a thousand dollars per unit
- Simply enormous fortunes have been made in both the gold and the bitcoin rush of the last decade to two decades
- The two are both extremely scarce and limited in production quantity
- Both bitcoin and gold must be mined in energy-intensive activities
- Both commodities/currencies are highly sought after in countries which are falling apart today
Gold vs. Bitcoin Investments Pros and Cons
Gold: Limited, Divisible, Counterfeit-Resistant and Virtually Indestructible by Nature
Gold has been used as a form of money for centuries, and its appeal lies in its unique properties. A lot of writings have gone into detail about why gold is a good investment. But, to sum it up, gold has stood the test of time for a few key reasons:
- No one’s making any more. All the gold on Earth is the likely result of supernovas billions of years ago. Unlike a modern “fiat” currency, no politician can just will more of it into existence. And despite many attempts, there’s no alchemy that can create more. Part of gold’s value is intrinsically tied to its supply, limiting the effects of inflation or even causing deflation – bad for governments but good for savers.
- It’s easy to “coin”, yet lasts forever. Plenty of physical items have served as currency over the millennia. But unlike salt or cockle shells, gold emerged the winner in part because you can beat it to a pulp with no ill effects, yet it can be divided into near-perfect uniform chunks that stay that way. Gold is an inert metal that never corrodes. It can be pounded into a strip a few atoms thick without breaking. Yet it’s comparatively soft and easy to shape — malleable, as they say. This makes it ideal for making into coins and bars that will remain stable for centuries or millennia to come, whether they are gram-sized slivers or brick-sized bars that weigh many pounds or kilos. That’s why buried and sunken treasure always involves some form of gold coins that are inevitably found in good condition.
- It’s difficult to counterfeit. Those same unique properties of gold mean experts have many ways to verify the authenticity of coins and bars. In the very worst case, it can be melted down in a process called an assay, then recast to ensure there is nothing but gold in a bar. And this can happen again and again with little energy required to ensure the gold is real.
Gold has remained an ideal form of coinage because of its unique physical properties. It has been a store of wealth since ancient times. Gold has become a modern economic asset with a worth in the trillions of dollars and it trades hundreds of billions of dollars every day around the globe.
Gold is a safe investment for people who want to protect their money from political unrest. It’s been passed down from generation to generation. Gold serves as a safe haven asset during market crashes or local currency collapses. This is the best insurance policy against unexpected events.
Bitcoin: Limited, Divisible, Counterfeit-Resistant and Democratic by Design
Bitcoin was designed to share many of gold’s unique properties while also adding some extra benefits.
Cryptocurrencies allow people to securely transact with each other using the internet. The transactions are verified and authenticated by a decentralized network of computers, making the results fraud-free.
In the original 2008 whitepaper, its pen-named author, Satoshi Nakamoto, described:
” A system of electronic payments that bypasses financial institutions altogether would allow people to send money to each other directly. While digital signatures are helpful, they don’t solve the problem entirely. The main advantage is lost if we still need a third party to make sure someone doesn’t spend the same money twice. We suggest a way to stop the double-spending problem by using a peer-to-peer network. The network creates a timestamp for transactions by adding them to a chain of hashes that is based on proof-of-work. This record cannot be changed without also changing the proof-of-work.
This means that bitcoins are unique and cannot be counterfeited or copied. Bitcoin uses cryptography, which is the same branch of computer science and mathematics that is used to protect electronic communications from the military to your bank’s online password, to ensure that coins cannot be copied. Bitcoin is different from cash and gold because it can be verified much more quickly. Even though it can take a long time to verify transactions and there are some risks that come with its peer-to-peer design, Bitcoin is still an amazing innovation.
Bitcoin’s use of cryptography for security purposes allows for some interesting additional benefits. An analogy for public key and private key digital signatures would be two different bank account numbers; one for deposits and the other for withdrawals. Other people can only use your public key to send you money. No one but you should ever know your private key because it gives you access to your funds. Even if you put your public key on a billboard for everyone to see, your funds would still be secure. Without your private key, no one can withdraw your money.
This means that the last person to take possession of a coin is the official owner of that coin, even if they did so illegally.
Endorsements for Bitcoin
Bank of America Merrill Lynch has suggested that Bitcoin could be a serious competitor to cash, about two years ago. They said that its ability to take over the spaces of digital money transfers and e-commerce transactions is innate.
Since Bitcoin was endorsed by the one-time largest brokerage firm in the country, it has only become stronger. what makes the network attractive is that it is both decentralized and peer-to-peer.
This means that the cryptocurrency cannot be easily manipulated by any one or several central banks, and it also does not need any central clearinghouses or even financial institutions like the mega international commercial banks in order to process the various transactions. In order to make payments, all Bitcoin customers or vendors require is Bitcoin software and a reliable internet connection. By using only these two elements, they can send payments to any other public accounts.
Bank of America/Merrill Lynch forecast the price of Bitcoin incorrectly two years ago. They believed that the maximum value of BTC would be $1,300. The price today is more than twice what it was before. They said that the world’s leading cryptocurrency would need to have an exchange value that was close to silver, but it has not worked out that way.
Ethereum (Ether)
The Silver Like Track Record of Ethereum
Ethereum has already been called the new silver. On January 1, 2017, one Ether Token cost $8. A coin that was worth $100 six months ago is now worth $385. If you had invested $100 in Ethereum tokens on January 1st, your investment would now be worth over $4,810. This is a relatively new cryptocurrency that has only been around since 2015. This year alone, ether has increased in value by over 4,800 percent.
Ethereum As The New Silver
Ether has some way to go before it becomes more than just the new silver. It is the first alt-coin to successfully challenge Bitcoin. The real reason Ethereum has become known as the new silver is because it is a precious metal that is used in jewellery, coins, and other decorative items. Ethereum is also a valuable investment, and many people believe that it has the potential to unseate Bitcoin as the world’s most popular cryptocurrency. Ethereum’s industrial applications are more numerous than Bitcoin’s gold-based cryptocurrency.
Ethereum is a software that has made large promises and is already beginning to deliver on them for digital applications that are industrial in nature. It is not simply a virtual currency like Bitcoin. thereum provides a way to develope smart contracts that is already proven to be viable.
These are transactions and online markets that can be completed automatically based on preset conditions coded into the blockchain.
Think about the ways that the new silver can be used in digital industrial applications that are already operational.
Ethereum blockchain code-based programs allow for a variety of uses, such as sports betting, paying for and managing electricity, questionable Ponzi schemes, and farmers selling their produce directly to the end using consumers. Most international banks are already interested in using Ethereum’s code to create programs for faster money transfers and trading.
The Enterprise Ethereum Alliance
Some of the biggest names in the business world, including JP Morgan Chase, have teamed up to create the Enterprise Ethereum Alliance. This organization will work to promote the use of Ethereum’s blockchain technology in business. Microsoft Business Development and Strategy Director Marley Gray summed up their collective thinking best with the statement:
Ethereum is a versatile platform that allows you to create solutions for many industries using a very efficient method- the most efficient method seen to date.
An example of new digital “industrial” applications is JP Morgan’s Ethereum-based tool Masala. It allows some of their databases to interact with Ethereum blockchains. Technology giants Microsoft, Intel, and IBM are considering ways to use Ether.
Many companies, including some industry leaders, have signed on to the Ethereum Enterprise Alliance, indicating their commitment to seeing Ethereum succeed. Many companies, including JP Morgan, Microsoft, Intel, BP, ING, Credit Suisse, and Santander, have committed to being more environmentally friendly.
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