11 Rounds Battle: Precious Metals vs Bitcoin
The financial and philosophical battle between fans of precious metals and fans of bitcoin is heating up.
In this article I present 11 topics where we can put both assets to fight - which one is superior?
1) WHAT CANNOT EXIST WITHOUT THE OTHER?
Gold and silver are needed to produce electronic devices and computers, servers, routers are needed to create Internet and online ecosystem, including cryptocurrencies.
The other way around is not the case: cryptocurrencies are not needed for the gold and silver to exist, to be transported, mined and stored.
WINNER: METALS
2) SECURITY OF OWNERSHIP
Bitcoin has highly distributed, decentralized and sophicisticated ledger, assuming you will not lose your private key - its ownership security is greater than precious metals storage in commercial professional vaults, as storage firms can experience various security or legal problems. There is already a more secure and faster technology than blockchain which uderpins Bitcoin - called Hashgraph.
WINNER: BITCOIN (for now...)
3) TRUE SCARCITY & MONOPOLY
Both Precious Metals and BTC are limited in supply.
However, when we realize that BTC is esentially a cryptocurrency, one of many other cryptocurrencies.... we must recognize that the supply of cryptocurrencies backed by nothing physical is potentially unlimited.
BTC does not have monopoly over its function as cryptocurrency or store of value.
Bitcoin despite being limited to 21M units, is still a technology which can be replicated or outpaced by other technologies.
BTC is only scarce... within itself!
When we look more broadly, at whole economic universe - we see that its real scarcity is an illusion.
Take land, for example.
We cannot make any more of it AND there is nothing which can substitute land. That is true scarcity.
Gold and silver in their industrial applications are similar to land - they have monopoly in certain, technological and economic functions.
There is only 54,000 metric tonnes of Gold in known underground reserves. With annual mining production of about 2,500 tonnes per year, we have only about 20-25 years until there won't be any more Gold production.
WINNER: Metals
4) EASE & SPEED OF TRANSACTIONS
With tokens/cryptos based on vaulted precious metals, like: DGLG, PGMT, CGT, PAXG, KINESIS, exchanging them for other currencies is as fast and with comparable cost as Bitcoin. There was no such gold-backed tokens before 2018, so transactions with physical gold and silver were much less comfortable.
WINNER: DRAW
5) THE COST OF THE ENTIRE INFRASTRUCTURE
The total, global costs of maintaining BTC vs Gold-backed money/ architecture is not easy to estimate.
However, we know that mining Bitcoins needs comparable amounts of energy as used by countries like Switzerland. Physical gold and silver storage costs in relation to their value is low, esp if done on a large, institutional scale.
Widespread use of tokens backed by physical metals stored at hundreds of vaults around the globe, can substantially lower the need to ship metals between locations.
WINNER: METALS
6) OTHER USES APART FROM MONEY/CURRENCY
Gold and silver have industrial uses apart from being money which supplement their value. BTC has no other use apart from speculation or storing monetary value for certain amount of time. Therefore, chances that something else will beat Bitcoin / Precious Metals in ALL of their functions is higher for Bitcoin, as it has simply less roles in economy than PMs.
WINNER: METALS
7) THE QUALITATIVE COMPOSITION OF ITS OVERALL VALUE
Gold and silver internal structure is simple: they are 100% minerals and nothing more. Their whole value is composed of being the metal with certain properties. BTC was created by man as one of the tools to do a particular task. Its entire value is based on its usefulness as a tool. Its not physical, it also has no artistic/collectible value.
What society does with its tools? Over time, we always:
- change,
- improve,
- replace,
- abandon,
- prohibit or
- destroy
our tools, their market value may fluctuate but eventually will drop to zero, as they are purely a tool, without any physical or artistic component to it.
All technological things have lower and lower price tag over time, since technology rides in one direction: ever growing improvement! A particular tech tool is good today but will be less good tomorrow since it can always be improved upon.
Precious metals are always the same - it cannot be improved, its properties remain the same.
WINNER: METALS
8) ITS VALUE IN CASE OF THE WORLD OF UNIVERSAL ABUNDANCE
Let's assume one day in the future we will have "unlimited, universal abundance" of "almost" everything: electric energy, housing, food, robots doing any kind of work, transportation, communication, clean water, tools, wood, plants, gadgets, entertainment, etc. In this kind of world BTC will not be needed as currency or money.
But PMs will always be in limited quantity and will still have uses apart from money/currency.
WINNER: Metals
9) WHAT IS MORE LIKELY TO SURVIVE THE COMPETITION
BTC has unique property: its inventors and early investors are most likely the largest owners among population. If BTC popularity will steadily rise, until all humanity uses it as a currency, newest buyers (at the highest prices) will pay for them orders of magnitude more than earlier owners. If this reminds you of a Ponzi scheme - its becasue its precisely such a scheme.
For a virtual currency value to hold up, people must continue to use it (buy it). Any alternative options on the horizon, and its relative value drops, as people move to something else.
Of course, many things can have alternatives and competitors in their role. However, so far we don't know of any alternatives to gold, silver and land within their roles.
In case BTC would rise to a dominant global currency, the following will happen.
Sooner or later people will realize, that earlier buyers of BTC have more purchasing power than later buyers. Since BTC maximum supply is fixed, and the amount of goods and services generally rises, over time BTC purchasing power will rise also. While its a good quality comparing to todays fiat currencies, it still forces people to invent more fair units of currency.
The little-known problem with fixed supply currency is that over time, their old owners hold the ownership title to the new inventions, technologies, etc. created long after they did their (often less technologically advanced) work for which they were paid in this currency.
As a result, current generation of working class, will inevitably see their weaker economic position comparing to older cryptocurrency savers. The only way they do to prevent this from happening is to introduce competing currencies into the monetary system. This way, the relative value of previous, fixed-supply currency will drop.
This can be achieved with tokenization of real assets: not only we can have Precious Metals backed tokens, but also currency-like tokens linked to land, real estate, critical infrastructure. The more humanity creates and builds, the more spectrum and amount of currencies it has.
With hundreds of different tokens of wealth available for exchanging, the domination of a single currency is eliminated. This could make tokens backed by nothing physical simply... obsolete.
They can be displaced by tokens connected with physical wealth, as better currency will always win over poorer.
WINNER: METALS
10) THE POTENTIAL OF 100% LOSS OF VALUE IN RELATION TO OTHER ASSET
BTC price can drop to zero as a result of various events, but PMs with their industrial uses: can't, apart from one exception. Complete chaos in the society, due to lack of electricity or big asteroid strike. But in this case, BTC will also drop to zero.
WINNER: METALS
11) WHAT ASSET IS ULTIMATELY BETTER FOR HUMANITY
Finally, lets objectively consider ownership of which asset is better for all society?
If you were an Evil Global Dictator would you rather:
- create, hype and force the ownership of fiat currencies, bonds and BTC among population, and
- supress the price of PMs while accumulating them as much as you can? (with money created from thin air...)
- promote the ownership of PMs among population, while
- decrease your own PMs, leaving the fiat paper currencies and BTC only for yourself?
Only someone with inverse sense of logic would think the second scenario is EVIL while the first is GOOD for the population!
In other words: widespread ownership of physical assets among people tends to be good, while widespread ownership of virtual assets with little real assets is not good.
The same can be observed with modern strategies of central banks: they accumulate precious metals, while creating fiat currencies and issuing bonds for the general public. We do not observe the opposite: central banks do not give us their precious metals for free. They also do not perform any economic work (outside of financial industry - the real economy), in exchange for fiat currencies, BUT WE DO this since 1971.
If central banks would own all precious metals apart from metals already inside
the electronics/industrial devices - the producers of electronics, jewellery, solar panels, etc. would have to pay them extremely high price to get them. Central Banks would hold a monopoly over a scarce, IRREPLACEABLE resource.
If central banks would own all 21 million bitcoins, the rest of humanity will just switch to any other existing currency, invent other currency or use gold and silver.
If central banks would own zero precious metals and will not force population to use their fiat currency, humanity will simply use their own currencies and money. And their own private, p2p or social lending systems, without the need of central banks.
The same can be understand with the following. Lets assume you can have any amount of fiat currency to purchase ALL precious metals or ALL bitcoins. You have a choice of either assets. What would you rather choose?
Choosing bitcoins gives you nothing, since the moment you own them all, people will simply use something else as currency. Most sane people will not exchange their work and assets for a technology of virtual token of wealth, which is owned only by a single person. But if you will own all gold and silver, the people will have no other possiblity other than buying them from you, as precious metals have no alternative in real economy. Of course, they will try to steal them in such scenario, but that is another issue.
The more precious metals is accumulated in fewer hands, the worst for society, as we would have to pay more for them. Narrow or widespread ownership of Bitcoin, does not change the market dynamic, because humanity can use any other currency at any moment. Therefore, its precious metals ownership distribution which determines the prosperity of majority of population.
WINNER: METALS
The battle ends with 9.5 : 1.5 for Precious Metals!
Copyright 2020 by Pawel Stadowski
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