In the past decade, the total cryptocurrency markets have seen a meteoric rise in US dollar value. Currently, the total cryptocurrency markets are valued at 285 billion dollar and numbers are rising steadily in 2019. On the other hand, we have the precious metals markets.
Although the total cryptocurrency markets have risen fast in value, they still suffer from very volatile price swings. This in contrary to for example the gold market which has a very stable value over time. Cryptocurrency are designed to be deflationary which is the opposite of fiat currency. Similar to precious metals, this deflationary property can be used as a hedge against inflation.
Precious Metals vs Cryptocurrency
Just like fiat currency, cryptocurrencies do not have a physical backing. It’s a total digital solution. As a matter of fact, cryptocurrency is backed by computer code and miners or nodes. On the other hand, there is precious metals, which are natural. There is a fixed amount of silver on planet earth.
As a result, precious metals and cryptocurrency are more alike because they both have a limited supply.
The ‘Intrinsic’ value of Cryptocurrency
It’s not fair to say that Bitcoin or any other cryptocurrency has no value, because it only exists in cyber space. Many veteran ‘Goldbugs’ have stated this before and one of the leaders is gold bug legend Peter Schiff.
But why are they wrong? Bitcoin is the leading cryptocurrency today with a market cap of around 180 billion dollars. Precious metals and cryptocurrency are alike because both assets are scarce. The limited supply of Bitcoin will finally be capped at 21 million coins. Bitcoin being capped at 21 million coins are similar to Gold which also has a limited supply available on planet earth.
Digital value of Cryptocurrency
To find the precious metals, mining companies need machines and other equipment to dig this asset out of the ground. Similar to this is cryptocurrency which also needs capital investment to use mining farms. These mining farms have a lot of electricity and computers which is needed to create new crypto.
A second argument which gives cryptocurrency value is the cryptography being used on every crypto transaction. This very difficult cryptographic puzzle makes the protocol extremely difficult to hack and very secure. If you compare cryptocurrency vs fiat currency one can say that cryptocurrency is much more secure and far more cost-efficient. As a result of being efficient, the transaction fees for transportation value across borders is very low. In this digital age, where 90% of global transactions are digital this easy-to-transfer property gives cryptocurrency value for sure!
The Big benefit of Precious Metals
Gold as a precious metal has proven its value for more than 3000 years which makes it a very trustworthy financial asset. Gold has proven to be THE haven against inflation or any other monetary crisis on a global scale. As a result, gold will always have intrinsic value and be treated as a form of money. This store of value property also goes for its little brother silver which has the same history compared to gold.
One of the main differences between precious metals and cryptocurrency is that precious metals are being used as actual commodities in several industries. Gold and silver are tangible assets and can be used to produce goods. Silver, for example, has some very interesting properties for being used in the global industry.
Properties of Silver
Like I explained above, silver is a tangible asset which is the main difference compared with cryptocurrency. Over the past centuries and even nowadays, silver is a very popular commodity to produce actual goods. In addition silver has some unique properties:
- Physical strength
- Ductility(it can be squashed or pulled into shape)
People have also used silver in jewelry, tableware and fine art for thousands of years. Industrial applications use silver’s conductivity (the highest of any element for electricity and heat) as well as its sensitivity to light and anti-bacterial qualities.
Industries which use Silver as Precious Metals
Solar panels — The use of silver in the fabrication of photovoltaic cells, more commonly known as solar panels for solar power, is seen as an area of rapid growth in the short to medium term. The Solar Energy Industries Association expects that the US will have more than 100 GW of solar power installed by 2021.
Using silver as conductive ink, photovoltaic cells transform sunlight into electricity. In 2017, photovoltaic demand for silver rose 19 percent, and, although it declined slightly in 2018, it still reached 80.5 million ounces that year.
Automotive industry — Last year, around 36 million ounces of silver were used in automobiles. Every electrical action in a modern car is activated with silver-coated contacts. Basic functions such as starting the engine, opening power windows, adjusting power seats and closing a power trunk are all activated using a silver membrane switch.
Brazing and soldering — Adding silver to the process of soldering or brazing helps produce smooth, leak-tight and corrosion-resistant joints when combining metal parts. In addition, silver-brazing alloys are used widely in everything from air conditioning and refrigeration to electric power distribution.
Rising demand for Precious Metals
Precious metals are a very popular commodity and are used in several industries all over the world. The global industry is growing on a global scale because of the rising demand from India and China. As a result of this industrial demand added with the demand from financial markets gives a very bullish outlook on precious metals for the coming years.
|Good to know|
|Currently it’s very easy to trade cryptocurrency with precious metals. Below two popular platforms.|
|Bitpanda(Also possible to trade with EURO )|
The benefits of Cryptocurrencies
Currently we live in 2019, where most of the daily transactions are taking place in a digital way. Furthermore, the daily work environment happens 80% online. After work, when we arrive at home we want to relax and use online social media to communicate or watch Netflix online. In 2019, our daily lives happens to be for 75% online.
Nowadays, most of the financial transactions are being done with fiat currency. Earlier in this article, I explained the massive growth cryptocurrencies experienced in the past few years. In addition, I would like to state that cryptocurrencies are here to stay and will integrate in our daily lives in the near future. So what are the benefits of cryptocurrency compared with fiat currency or even precious metals?
Before diving into the benefits of cryptocurrency, first let me explain the idea behind Blockchain technology. Cryptocurrency is not only about money, but the technology and network behind it is mainly focused on transactions. For instance, to allow secure payments the underlying Blockchain network has to handle the transactions. This is done in the form of digital tokens which can be used to transfer value across the network.
|Good to know|
|If you are really interested in the way Bitcoin & Blockchain technology works: Below some very famous books about this topic.|
|Mastering Bitcoin : Programming the open Blockchain|
|Mastering Ethereum : Building Smart Contracts and Dapps|
Instead of cryptocurrency, ‘crypto’ is mainly used to define this form of cryptographic money. As a result, Crypto refers to the fact that various encryption algorithms and cryptographic techniques are being used. For example, elliptical curve encryption, public-private key pairs and hashing functions. The most important fact about Blockchain technology is that it’s a decentralized distributed network of computer nodes. As a result of this, there is no central party which regulates everything. This decentralization property is the first main benefit of cryptocurrency
Cryptocurrency the Benefits
Below I will list the main benefits of cryptocurrency and explain it in a short way.
- Decentralized – No central party who regulates or has full control about market supply. This prevents market manipulation or fraud in the system. All participants start on the same level which creates an equal level playing field.
- Portable – Unlike precious metals which are tangible assets, cryptocurrency can be easily transported cross-borders
- Limited Supply – In the past there were several monetary crisis which caused hyperinflation(Venezuela, Argentina nowadays). As a result, pensions and savings went to zero. The limited supply of crypto’s will prevent this.
- Highly divisible – Bitcoin for example, is capped to a total supply of 21 million coins. This shouldn’t be a problem because the smallest unit can be divided by 100 million or 0.00000001 BTC.
- Easily translatable – Crypto’s are a fully digital solution which can be used on mobile phones or online payments. People nowadays are very common with online digital payments.
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