By customer Siegner, Exchange of metals and money
After making news last week when the Securities and Exchange Commission (SEC) finally approved exchange-traded funds, it’s a good time to revisit the topic.
Bitcoin still offers the potential to serve as an honest form of money and put an end to the central bankers and politicians who have so abused the fiat system.
Yet some proponents still market the crypto asset as “digital gold.”
Bitcoins versus gold
This, combined with the dramatic rise in bitcoin prices over the past year, means many investors are interested.
There are good reasons to own bitcoin, but they are not the same reasons to own physical gold.
The notion of bitcoin as “digital gold” is dangerous and misleading.
First, the comparison with gold is absurd. Bitcoin is not a reliable store of value or a strong safe haven.
Bitcoin is neither proven nor permanent. It is better to think of Bitcoin as a promising technology.
If it achieves widespread adoption and use, it will help solve some major problems in global monetary systems. This has not happened yet and there is no certainty that it will.
Additionally, bitcoin will thrive as long as it remains the most popular, useful, and secure cryptocurrency. Bitcoin is definitely the favorite. It has a greater network effect and “brand” awareness advantage over other tokens, many of which failed or were exposed as outright frauds.
Ask anyone who remembers social media pioneer MySpace if those advantages meant the tech company would stay on top permanently.
Bitcoin’s fortunes are tied to a community of volunteer developers working to improve and update the protocol. Humans make judgments about the direction development should take, and so they may be wrong.
Take, for example, the controversial decision to implement the Lightning Network.
Several years ago, the community was divided on the question of how best to increase Bitcoin’s capacity to process more transactions per second, when severe speed and cost limitations became apparent during periods of high volume.
A majority decided to abandon any attempts to evolve on the Bitcoin blockchain itself and pursue a technology called Lighting Network.
Although progress has been made in the development of this second layer solution, many problems remain. Among them is the fact that Lightning is nowhere near as decentralized or secure as the Bitcoin network itself.
Bitcoin is an innovative technology that has both the potential to change the world AND the potential to fail and become worthless. Investors should buy it because they understand the project and believe it will succeed, not because it is “digital gold.”
Gold is a completely different animal. It is not a technology and its value does not depend on innovation, electricity and an Internet connection. There is no developer behind this.
Physical gold is rare, durable and beautiful and therefore valuable. These properties have made it a refuge and store of value for thousands of years. There is no substitute.