I came across a podcast by Peter Schiff on the Joe Rogan experience.
I really like Peter Schiff and definitely Joe, and I was really intrigued when I got into the discussion on cryptocurrencies.
Since I respect Peters belief in Gold, and so I have decided to take his words seriously and dig in deeper.
To summarize, Peter believes:
- Cryptocurrencies are worthless since they are not BACKED by anything, just like FIAT currencies
- Gold & precious metals are the only real money since its ‘physical’ and tangible
Now frankly speaking, its a little unfortunate that Peter’s depth of understanding of cryptocurrencies is definitely limited.
Peter is propagating this project called Gold Money – in which essentially you have tokens or ‘ownership’ of gold and you can transfer ownership of gold.
Lets dig in.
#1: Gold – What is it really? Why does it have value?
After researching the history of money and gold specifically I can honestly come to the conclusion that in off itself gold never had any value historically.
You cannot eat gold, you cannot wear it, and historically no one had any day to practical use of gold.
Thus, gold was truly the first blockchain.
It was a way to maintain transaction records without actually maintaining transaction records.
Think about it, you did not actually need to ‘verify’ that the person owned this wealth since he handed it over to you.
The limited supply means it can’t be forged or inflated into oblivion and it eliminated the need for actually writing anything down or keep any ledgers at all.
It was truly an awesome innovation for a society that relied on primitive ledgers or barter.
The line however needs to be drawn.
Inherently, gold does not carry any value, its only a medium of exchange.
Note: for future, with development of super conductors etc this will change.
#2: How to use gold?
The next question that arises is how the hell do you actually use gold in our modern society? We aren’t going to go around shaving pieces of gold to mail each other for an ecommerce purchase as Peter rightfully pointed out.
So there is a solution, Gold Money.
Lets dig deeper.
I have heard so many of these gold backed cryptocurrency scams before its actually getting old.
Logistically you buy gold and its stored somewhere in some vault.
No one actually ever sees any physical gold and what is left a database of who owes how much gold.
So if Peter sends money to Jim, all that happens is a database record gets adjusted, nothing happens with the actual gold.
And now the fun begins:
- How is this different from a gold backed bank besides its lack of regulation?
- What stops them from selling more gold then they actually have?
Essentially, the print their own money with a promise of gold which no one has ever seen and more importantly, at the end of the day it becomes a centralized ledger.
The fact that its backed by gold is sort of irrelevant since there are no guarantees that its backed accurately, and even if it was, that gold is still just a promise.
#3: Real Value of Gold
In my opinion gold holds value as a hedge against total and complete economic collapse.
But here is the catch, that only works in one case: when you have the physical gold in your physical hand.
A promise of gold is just as good as no gold at all.
Overall, I’m convinced that outside of a black swan event that destroys life as we know it, bitcoin is a fundamentally different approach to logging transactions than a centralized ledger.