Currency King (Gold vs. Dollar vs. Bitcoin)
Let's take a look at the most popular currencies in the world. This isn't going to be a technical piece, rather an exploration of all these currencies. *I'm not going to get in the debate of whether these are currencies or money, I just want to look at them for their positive and negative properties.
Here is a pro/con list of all the "currencies" listed above. Let's start with that shiny medal, Gold!
Gold (Pro) - Gold is timeless. It's been around for thousands of years and will continue to survive through the test of time. It cannot be destroyed as it has unique properties. Gold is Gold, and has not lost its value. Actually Gold appears to be slightly deflationary in terms of buying products. Why is this? Due to technological advances in human capital and equipment, the cost of production is much lower. When the production of something drops, the cheaper it is, and if your money isn't losing value, things tend to get cheaper and your purchasing power increases. This is the natural state of things. This is why we can afford cars, computers, houses, etc. If you own gold then your purchasing power slightly increases over time.
Here is an example: In 1985 a Big Mac cost $1.85 and in 2015 it cost $4.79. In 1985 Median household income was $22,259 and in 2015 was $53,013. Doing some quick math a big mac cost you .0083112% of your income in 1985. In 2015 it cost you .0090355% of your income. So in terms of median household income the big mac has gotten MORE expensive. This is even with more robots and capital equipment, one would think that this would have been cheaper but it is more expensive. But remember this is using the dollar, what about gold? It took .15 grams of gold to buy a big mac in 1985. In 2015 it took .13 grams of gold. Gold rose in purchasing power, while the dollar dramatically reduced (258% inflation in 30 years). So in essence, the dollar loses value and gold increases. Correct my math if you think differently. I used a simple calculator for all of this.
Here is another example: In 1985 gasoline cost 1.16 and in 2015 cost 2.51 per gallon. (216% inflation). Not going to do the math but based on a percentage of median income this commodity has gone down. Now let's look at gold. In 1985 a gallon of gasoline cost .11 grams of gold and in 2015 it cost .07 grams of gold. So if the question is whether one wants to save in gold or the dollar, clearly it’s gold.
And finally a third example: Now this one might be a little different because the product has improved over years so it's not an apples to apples comparison, but the purpose of the product has not changed. In 1985 a ford truck cost $9,000 and in 2015 it cost $27,825. That is 309% inflation. Now in terms of gold a ford truck cost 857 grams of gold in 1985 and 739 grams of gold in 2015. Wow! In terms of gold all products became cheaper. Imagine a currency gaining in value rather than losing its value.
Additionally, Gold is acknowledged as money not only in time, but in space. 1 ounce of gold in America is an ounce of gold in Chile. While the purchasing power of that gold might change depending on location, the fact that gold can travel in space and not lose its intrinsic value is crucial. No exchange rates need to occur, no conversions, no waiting in line to get the accepted currency of the country. Gold will buy you a big mac in America, and movie tickets in Germany. It's the metric system of money.
Gold is simple, beautiful, desired, and unique. It cannot be destroyed because of its unique atomic properties. A bar of gold now will last thousands if not millions of years from now. You can't say that about pieces of paper. Gold came to be money, not through force, but by utility. It just works. People intrinsically (at least used to) understand that gold has intrinsic value. It can be made into jewelry, used in electronics, and has many other applications including the largest one being money. It's not called a tree standard, it’s called a gold standard.
Gold (Con) - Gold is subject to mainstream criticism. They say the following: it's an old relic, a pet rock, old news. It has an acceptance problem. Gold is also hard to use because it isn't exactly liquid or digitized. You can't exactly buy a cup of coffee with physical gold. While various companies are fixing this problem (goldmoney.com) people just haven't heard the arguments for gold. It's viewed more of a store of value rather than something that can be used and traded. It's bulky, awkward, and heavy. It also has a storage problem; is it safer under your bed or in a vault?
Gold also has a massive competitor. And unfortunately for gold, its competitor is winning. That would be fiat money. Fiat money is mandated to be accepted and therefore mass amounts of people use it, almost primarily. Gold used to be part of the fiat equation when it was used as a gold standard. Due to various reasons (typically evil) fiat monies no longer consider gold important to link to. Because of this, gold has the possibility of being confiscated. This has happened in history (I forget the date/s). Because gold is considered superior to fiat by some, people who rely on fiat might see it as an existential threat and will want to eliminate it out of use.
They may say owning gold is unpatriotic or something. Time will tell, but people who rely on fiat might come for the gold. Gold is also subject capital gains taxes, which of course, are no fun. Let's say you buy $800 worth of gold. Fast forward two years and that gold is worth $2,000. That is an increase of $1,200! Tax collectors might consider that a capital gains tax and tax a percentage of that gain. Now the value of gold has just gone down, albeit unjustly, but nevertheless it is a real threat to gold owners.
*There are many more pros and cons to owning/using gold but I believe the above descriptions are a good starting point when deciding which currency is the best.
On to Bitcoin, the most popular cryptocurrency on the planet. *I am no expert on bitcoin, not even close, but these are my viewpoints nonetheless.
Bitcoin (Pro) - Unlike fiat money, bitcoin cannot and will not be "printed". When the last bitcoin has been mined, that's it, kaput, nada, done. No more bitcoin can be created. It has a cap. No amount of bitcoin will be created because the designer of bitcoin built scarcity into the program. While it is designed scarcity rather than natural scarcity it still fits under the definition of scarcity. I am not going to tackle the debate of whether bitcoin has intrinsic value or not, admittedly, this is a little over my head. If bitcoin can prove that is has value for the long term than it might have a chance at larger adoption.
Bitcoin payments are lightning fast. With a click of a mouse/touch on the phone you can send your bitcoin to someone else around the globe for free almost instantaneously. This is powerful technology. Very powerful. There are no fees, no regulation, and no down time. Instead of sending a relative or friend money in a time of need which will take days and is subject to regulation, bitcoin can do it in a flash. All payments are secured and confirmed by its powerful blockchain technology. There are no user fees, and as far as a I know, there are no taxes associated with it.
Another pro as far as I can see is that it is a computer program and not owned by one individual. Not one person can sink it. Bitcoin is a baby. Perhaps it will get stronger and more applicable with age. Different applications and tweaks to the blockchain and program itself. Since its open-source (I think?) problems that arise or user-problems could conceivably be fixed by tweaks in the blockchain and different bitcoin applications. The thing about bitcoin is, it appears to be able to EVOLVE. If indeed it can evolve, it will have a huge comparative advantage to all other currencies/monies.
Bitcoin (con) - Although technically it may not be scam able from the program itself, it does appear that some scamming on the fringes of bitcoin can happen (Mt. Gox). It is difficult to understand bitcoin (wallet, passwords, irredeemable purchases, etc.) While you don't have to understand something to get use out of it (computers, planes, automobiles) it may cause a sort of fear in the general public in its desire to use it. Quite honestly, it sounds like the matrix of money. Not exactly inviting.
While there are tokens of sorts, it’s not primarily tangible. Some would say it’s only an internet money. You can't touch bitcoin, you can't smell it, and you can't melt it. It’s my understanding that there are bitcoin atm's as well. But this is subject to fees and a hassle. While you can use bitcoin on the internet, it appears to be harder on the street and almost impossible. And yes, if companies accept bitcoin more and more its "value" would most certainly go up. It would be a win for companies (no credit card fees) and consumers (again no credit card fees). But it isn't exactly credit it would work more like debit. I have yet to see a cryptocurrency or even gold offer credit, just debit. This is a problem for a lot of the general public, people have become dependent on paying for things in the future.
Volatility is also a major problem for bitcoin. Lots of bitcoin holders are holding bitcoin apparently because they think it will be worth more later than now. When it's cheap people will buy, when it's high people may sell or use it. This isn't necessarily a problem, but human nature may prevent bitcoin to receive mass adoption because people may want to hold onto it until they can sell at a huge profit, rather than using it and bettering their current condition through purchases. I will admit this isn't a totally well thought out problem, but there does seem to be some truth to the matter. I for one have fell victim to this type of behavior. Also, another problem of volatility is on the business side. Businesses need to pay their workers for their labor. If bitcoin swings down on the lower side, this will make it near impossible to pay their workers. A problem I fail to see a solution for in the short term.
Fiat (Dollar) - I could talk about all the fiat currencies in the world, but there are over 100. Not sure how many, but there are a lot. So let's talk about the biggest one, the United States Dollar. While the euro is certainly huge, it is not the reserve currency of the world, that prestige goes to the dollar.
Dollar (pro) I already mentioned the biggest positive of the dollar. It is the reserve currency of the world. Its so ingrained in our minds, that we even still talk about gold and bitcoin in relation to the dollar $550 per bitcoin and $1200 for an ounce of gold. One doesn't say I have 2 grams of gold, typically you say I have 80 dollars in gold. Plain and simple, the entire world operates in some way on the dollar. Why? All oil is purchased in the dollar. This is what's called the petro-dollar. Petro meaning petroleum. So it's untrue to say that the dollar isn't backed by anything. The dollar is backed by the fact that all oil purchases (I believe) are purchased in the dollar. This is a huge advantage for the dollar and also a massive potential problem. But we are in the positive category, so let me continue.
The dollar is digitized unlike almost all of gold. It can also use credit, unlike the others. When you buy a cup of coffee you can use the dollar in three different ways: cash, credit, or debit. The dollar is convenient, you don't really have to think about using it. Everyone gets paid in the dollar. As far as I know the vast majority of people are paid in fiat and not in gold or bitcoin. This is important. The dollar for all intensive purposes has a monopoly on money, and all others are trying to dethrone the champ. Its hard to dethrone the champ, especially when it has so much support.
Dollar (con) - The dollar can be counterfeited. The dollar has been counterfeited. In fact, the dollar is counterfeited on purpose. It’s been counterfeited so much that it has been an art form. Quantitative easing, stimulus, share buy-backs, are just another way of saying that the dollar has been counterfeited. So much in fact, that it has lost 97% of its value since 1913 (the FED was created in this year). Counterfeiting the dollar has led to inflation. What used to cost 15 cents now costs a $2.25. The dollar has a purchasing power problem. Which in my opinion, is the biggest problem a currency can have. If people lose their value they will eventually stop using that medium of exchange and migrate to something that either holds its value or increases in value. Although this has not happened yet and it’s been 100 years of the dollar losing its value... There appears to be no way in stopping the counterfeit problem. Some might say that the inflation problem hasn't been that bad. But, this could have been mitigated by the increase in production and the fact that no one has been dumping the dollar because other countries hold the debt. You've heard these arguments before, and they are valid ones.
Psychology is another problem for the Dollar. Once the common citizen understands that inflation is a hidden tax, they could revolt. People are trading their labor for the dollar. In return their dollar is losing value. So in essence, they are losing their labor to inflation, but they don't necessarily see it. If people were told that in 5 years they would only be allowed to work 32 hours instead of 40, there would be problems. But when the dollar inflates 20% people don't realize it's the same loss of labor. Once this is realized, people will migrate.
Another problem with the dollar is a problem with morality. If the dollar supply was matched with the inflation rate and it was spread out evenly among the populace problems might arise because it still hurts savers, but it’s even worse than that. Who gets the newly minted dollars? Certainly not the general public. It is the well connected. The well connected businessmen, central bankers, wall street, politicians etc. And not the laborers, teachers, doctors, mechanics, and fast food workers. It certainly doesn't trickle down! While wages and salaries remain stagnant or slightly higher, they certainly don't remain constant in terms of inflation. This is a problem, a huge one. The 99% protests were correct in their complaints, but perhaps not in their solutions. When the vast majority of the populace are not the well-connected they realize they are getting a raw deal. If the dollar is ever pinpointed as THE problem, then it's toast, literally.
Okay, I'm done. I'm sure some of my arguments have flaws, but that's okay I'm a new writer. I just ask people to be respectful in the comment field. To finalize this piece I'm going to make a couple of lists. Here is the first one:
Currency Power Chart (current)
- Dollar
- Fiat
- Gold
- Bitcoin
- All other cryptocurrencies
Ideal Currency Chart (the one that does the most for the people)
Steemit
(Just kidding) no but really I'm loving this platform. Thought I'd throw a joke in there :)Gold
Bitcoin (If it can fix its problems it has a fighting chance)
Fiat
Dollar (The dollar has been so manipulated, that the other fiat currencies might outlast it)
