Historically, gold has been used as a standard to determine the value of different currencies. It still has a strong reputation in the financial world and it’s often considered as a safe-haven asset. But recently, a new contender has entered this landscape and its demand has significantly increased over the years.
Some analysts claim that the cryptocurrency has the potential to become the new gold standard. However, critics still criticize it for its volatility, regulatory uncertainties, and other issues. So, there’s a continuous debate going on between the supporters and critics of cryptocurrency.
The Gold Standard in Economic History
The gold standard has influenced global finance and trade for centuries. In the past, the value of the currency of many countries was linked to gold. The modern gold standard dates back to the 19th century. It was initiated when Britain adopted the gold standard in 1821. Other nations eventually started adopting this standard.
The reason why it gained popularity is that it offered stability during uncertain times. It also successfully coped with exchange rate fluctuations. It supported global trade by providing a common reference point. Over the years, gold constrained the ability of countries to conduct monetary policy.
It helps with controlling the supply of different currencies. However, the gold standard lost its value when some countries agreed to use the US dollar as the world’s primary reserve currency after the world wars. However, it left some economic problems because the currencies were no longer backed by physical assets.
Although central banks could now adjust their monetary policy independently, it led to problems like exchange rate instability and high-risk inflation.
The Rise of Cryptocurrency
The cryptocurrency market has reshaped the financial world with its extraordinary rise. Bitcoin whitepaper was introduced in 2008 and the first Bitcoin transaction took place in January 2009. It gained a lot of attention because it’s backed by the blockchain technology. Tech enthusiasts welcomed this technology as it eliminates the need for intermediaries.
Moreover, the investors liked the security standards offered by the blockchain. Initially, only a small group of people started using this technology. However, the adoption rate gradually improved over the years. And it has now become an important investment option for most investors.
Bitcoin also paved the way for other cryptocurrencies that further enhanced the adoption of the crypto market. That’s why Bitcoin and other cryptocurrencies experienced significant volatility over the years. And now, many financial institutions and corporations are also showing interest in this market.
But it also brought the attention of regulators to this fast-evolving industry. The countries around the world have adopted different approaches to accommodate this landscape. Although the crypto market has been experiencing regulatory challenges for some time, the industry has consistently offered new developments and technological advancements to enhance its adoption.
Cryptocurrency vs. Gold
Although cryptocurrencies and gold have some fundamental differences, they share some important aspects.
- Scarcity and Durability – Gold has been used as a valuable asset due to its scarcity and durability. It’s considered to be a reliable store of value because it has a limited supply. Bitcoin shares this aspect with gold because it has a limited supply of 21 million tokens. Thus, it can establish its reputation as digital gold over the years.
- Divisibility – Although gold can be shaped as coins or bars, it can’t be used for everyday transactions. Cryptocurrencies, on the contrary, are perfectly suitable for microtransactions because they are highly divisible.
- Portability – Gold is often stored in financial institutions because the owners can’t carry it with them. Whereas cryptocurrencies can be accessed through digital wallets. Thus, they’re easily available worldwide.
- Accessibility – Individuals need to have a higher amount of capital to invest in gold because it’s usually available in the form of bullion or coins. Crypto investors can even purchase a fraction of the crypto token if they can’t afford to purchase the full token. That’s why cryptocurrencies are attracting a huge number of new investors.
- Volatility – Gold’s price changes gradually over time and it offers more stability than other assets. Cryptocurrencies, on the other hand, are widely known for their volatility. So, at one point, they offer amazing earning opportunities for investors. But at the same time, they pose severe risks.
- Tangibility – Gold is a tangible asset that can be used physically. However, the cryptocurrencies are only available in digital form. That’s why some investors are still reluctant to use cryptocurrencies as a store of value.
- Store of Value – For centuries, gold has been considered a reliable store of value. Although cryptocurrencies also offer a similar feature with their limited supply, they need to go a long way to establish their position as a store of value.
Bitcoin’s Potential to Become Digital Gold
Bitcoin’s supporters think that Bitcoin can replace digital gold because it’s used as a hedge against inflation and it also offers massive returns in the long run. The critics think that Bitcoin can’t be compared to gold due to its extreme price swings. Similarly, the critics raise their concerns about regulatory issues.
However, the rising interest of large institutions shows that Bitcoin may become a strong contender in this category. But it could also affect the fundamental principles of decentralization.
In the ongoing debate between proponents and critics of cryptocurrency as a potential successor to the gold standard, one thing is clear: the financial landscape is evolving. While gold has long been a symbol of stability and a reliable store of value, cryptocurrencies have emerged with their unique attributes, such as scarcity, divisibility, and accessibility.
Bitcoin, in particular, has captured the attention of investors and institutions alike. However, concerns over volatility and regulatory challenges persist. The rise of cryptocurrency offers an exciting alternative, but its journey to becoming the new gold standard is still a path marked by uncertainty and transformation.
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