Crypto-Currency versus Fiat Currency (Dollars, Euros, Pounds) versus Gold

Previously we discussed that money is anything people are willing to exchange, and that value comes from scarcity.

Fiat Currencies

Fiat currency is the least scarce. Any government can print as much money as they like. When this happens too much you get runaway inflation, or hyperinflation. This is currently happening in Venezuela. In the past this happened in Germany in the 1920s, Zimbabwe in the 2000's, and the United States during the Civil War. There's a good article about it here https://www.thebalance.com/what-is-hyperinflation-definition-causes-and-examples-3306097

Gold & Precious Metals

Precious metals have value because they are scarce, and it costs money to mine for more.

While the global supply of metals has been increasing each year, it has not been increasing as fast as the global economy has been growing. So this means there is less gold per person's output today than there was in the past. One unit of gold that would buy a person's work for the day, will now buy more than one day's work.

But the amount of gold that will produced tomorrow is not know. It could be that the supply dries up and people can't find more. If that happened the value of gold would increase substantially. It could also happen that a great amount easily obtainable of gold is discovered, which would lower the value of gold.

Once again, it's scarcity that controls the value.

Crypto-Currencies

Different Cryptos work differently, but for this case we will discuss Bitcoin (BTC).

Bitcoin, by it's design, has the ultimate scarcity. The total supply of BTC is limited and pre-defined in the Bitcoin protocol at 21 million. There can never be more created, and so the world will have to manage with that total supply. No government can print their own Bitcoins. No criminal can forge fake Bitcoins. 21 million, never a single one more.

As a side note, there are currently (Dec 15 2020) approximately 46.8 million millionaires in the world according to the Global Wealth Report. https://spendmenot.com/blog/what-percentage-of-americans-are-millionaires/  If every millionaire wanted some BTC they could own less than 1/2 of a coin each.

 

 

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