Stalemate or checkmate?

Published on
August 3, 2023

A Golden Era in The Exponential Age of Technology?

The future is digital. The future of money will most likely be digital (I assume most agree on this).

Digital cash in the form of bits and bytes could become the currency of the future. The question that is still to be answered: will the future of money be centralized or decentralized?

We are living in the exponential age of technology, many underestimate how fast the world is changing. Our brains understand linear growth, but aren’t able to cope with exponential growth. This makes it hard to predict what the future will look like, at an ever increasingly rapid speed.

However, it's apparent things will change. Historically, paper currencies have proven to keep a short lifespan. Researchers found that the average lifetime of paper currency is approximately 40 years, until it fails. Also, the median average lifespan of a paper currency is about 25 years. Keep this in mind...

The adoption of crypto is relentless and is likely to exceed the 43% adoption rate of the internet over the next 3 years. It is to be expected, regardless of our view on the concept, that adoption will accelerate once Central Bank Digital Currencies (CBDCs) are rolled out. Every major central bank is piloting, with use cases such as NFTs will be used for tickets, ID etc.

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Crypto adoption - faster adoption curve than internet

Tokenization of real-world assets is estimated to be a $16 TRILLION (!) industry, which will entirely transform real estate, private equity, stocks, bonds, and most forms of investing. According to Blackrock's Larry Fink, " the next generation for securities, will be tokenization of securities".

Welcome to the exponential age of technology and welcome to the economies of crypto.

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Tokenization of Global Illiquid Assets

Back to history

Currency systems are the backbone of any economy, facilitating trade and financial transactions.

From the group of people that are convinced that fiat currencies are nearing its end, one part is convinced that crypto will be taking over the world, and the other part finds the best solution in gold.

The use of gold as a currency dates back to ancient civilizations and has long been associated with stability and wealth preservation. With recent fluctuations in global economies and increasing concerns over the sustainability of fiat currencies, there has been renewed interest in gold as a potential alternative currency.

In recent years, the global financial landscape has witnessed considerable economic volatility, prompting (some) experts to question the stability and credibility of traditional fiat currencies. Against this backdrop, gold has emerged as an intriguing option for a new currency due to its historical track record and intrinsic value.

Throughout human history, gold has played a pivotal role in trade and commerce. Ancient civilizations like the Egyptians, Greeks, and Romans used gold coins as a medium of exchange, setting a precedent for its monetary value. The concept of a gold standard, wherein a country's currency was directly tied to a fixed quantity of gold, persisted until the mid-20th century. Its abandonment was mainly due to logistical challenges and the need for greater monetary flexibility in times of economic crises. Gold possesses intrinsic value, derived from its rarity, beauty, and the effort required for its extraction.

Unlike fiat currencies, which are backed by the trust in governments and central banks, gold holds tangible and universal value. Then there is the scarcity of the material, which ensures that its supply cannot be artificially inflated, reducing the risk of hyperinflation and preserving its purchasing power over time. Additionally, it has historically demonstrated resilience in times of economic turmoil, making it a potential hedge against market volatility and currency devaluation.

On the other hand: using gold as the standard currency brings some challenges as well. Its physical nature raises challenges in terms of storage, transportation, and ease of use in everyday transactions. Although gold has shown stability over the long run, it is not immune to short-term price fluctuations, which could pose challenges in establishing stable pricing mechanisms for goods and services.

Implementing a gold-based currency would require significant policy changes, affecting central banking practices, monetary policies, and trade dynamics. Adapting to a new currency system would necessitate careful consideration of potential economic repercussions.

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Crypto Backed Gold

However, significant advances in blockchain and digital assets have opened the door to potential gold-backed cryptocurrencies, offering a digital representation of gold that could address some of the practical challenges associated with physical gold

There is a growing number of supporters of Bitcoin as new reserve currency. Another sign of "momentum" is that the first (presidential) political candidates pro “crypto” are emerging, not only in the US. I expect this to keep growing.

Bitcoin and gold have both limited supply, making it attractive as stores of value. Gold's scarcity is based on its physical properties, while Bitcoin's scarcity is programmed into its blockchain algorithm, capped at 21 million coins.

The one thing that sets Bitcoin apart from gold is that Bitcoin has an adjustment that regulates flow rate. as the price of Bitcoin runs higher, the two-week difficulty adjustment inhibits digital miners from being able to capture more coins being sold into the market. On top of that, every four years, the amount of coins being mined gets cut in half.

The question which currency is better is hard to answer and is based on a number of things and your personal preference. Bitcoin offers unique advantages in terms of portability, divisibility, and ease of transfer in the digital age. On the other hand, gold has stood the test of time as a tangible and universally accepted store of value. Some argue that both assets can complement each other in a diversified portfolio, providing exposure to different types of economic environments.

The crypto market boils down to a series of networks. What lies at the centre of these ecosystems?

Money and value.

If the system is pushed to a halt, or a major economic downturn presents itself, where will one try to find "safety".

Only time will tell.

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