Will Digital Currencies Displace Gold or Precious Metals?
Unlikely, and certainly not before a US dollar collapse.
As the US dollar and many other foreign fiat currencies inflate and lose value, you may rightly worry about preserving your hard-earned wealth from the ravages of inflation. While precious metals like gold and silver have long been stalwarts in preserving wealth, emerging digital currencies have been knighted by a few as hard money’s savior.
Most online currencies are backed by something. That means they are really just a trading platform for some other commodity, often precious metals. The success of these types of efforts is also positive for investors in physical metals because increased usage drives up the global price level.
Other online currencies are really just advanced barter systems. They may issue participants “credits” for performing tasks or selling goods to other members. These schemes are potentially very dangerous because if they collapse (or are shut down), the members are left with nothing. They are also of limited use, as only so much credit can be issued before the system becomes unstable – and the credits can only be spent with other members.
There is one online currency that actually meets the definition of money. By using cryptography to make bits of computer code scarce, Bitcoin has achieved what no other online system has before. As long as you have those bits of code on your computer or stored online, they can be traded anywhere you have a network connection. This has many heralding it as the “future of hard money.”
However, Bitcoin was only released in 2009. Gold was released in supernovae billions of years ago. Gold has functioned as a store of wealth for millennia, and it is recognized across cultures for this purpose. Bitcoin is promising, but new, volatile, and vulnerable to being replaced by another competing digital money project.
Precious metals do not require a computer or energy to use, they maintain your financial privacy, and they are accepted and desired worldwide. While digital currencies may grow in popularity, none are positioned to challenge precious metals as the ultimate reserve asset.