Eureka! Digital Gold – A Way To Think About Crypto

Having a digital currency would have functionalities and efficiencies that physical fiat money cannot replicate.


Cryptocurrencies took the world by storm as the 2010s came to a close. Many thought Bitcoin could replace the U.S. dollar in the digital age. Many still do. Euphoria captured investors with a boom in 2017. But like any feverish rallying cry, history has proven that booms often lead to busts.

That has certainly been the case for Bitcoin, which saw the then all-time high of approximately $19,783 in December 2017 evaporate to almost $3,000 less than two years later. The cryptocurrency has already seen another boom-bust cycle in this young decade of the 2020s. Crypto has established a tight relationship with volatility.

Taking the long view has been the wise route for investors seeking growth. Recognizing and understanding innovative themes before the masses has often paid off. But it's almost always a bumpy ride. Seasoned investors who didn't understand the power of the internet missed out mightily in the dot-com days of the 1990s.

Missing the boom meant missing the bust as well. An important point about the dot-com bubble is that it was formed with a legitimate foundation. The advancement of the internet changed the world. But the euphoria got way out of hand and the speculation led to excessively inflated asset prices followed by a bursting of the bubble: boom-bust.

In the wake of the financial crisis came a novel digital currency. In 2008, the global financial system nearly failed. Investors and citizens were wiped out. The blame was laid squarely on irresponsible financial oversight. Distrust of big banks and big government exploded. There was growing desire for a decentralized electronic exchange that was peer-to-peer. The goal was to avoid government and financial institutions completely. Bitcoin was created so people could make financial transactions directly. That's precisely how it operates today. Some who enthusiastically embrace the cryptocurrency envision a day when Bitcoin replaces cash.

Bitcoin was born in 2009. Satoshi Nakamoto penned the original Bitcoin whitepaper and is the identity credited with inventing this cryptocurrency. It's not clear if Nakamoto is even a real person. Many have claimed to be Satoshi, without proof. Most believe Satoshi Nakamoto is a group of people who gave birth to Bitcoin. The true identity has never been revealed.

Demand for a universal digital currency is real. Hundreds of billions of transactions take place every second around the world. The U.S. dollar has been the global reserve currency since World War II. An alternative has been coveted for awhile, particularly with increased skepticism of the U.S. and the West. But a universal currency requires wide adoption, stable pricing and complete trust. Cryptocurrency has yet to meet those criteria.

Bitcoin acts less like a currency and more like an asset. It's a digital asset, transacted on a blockchain. There are only 21 million Bitcoin in existence. Roughly 19 million are in circulation. Bitcoin is mined, however, not in the traditional sense. Mining for Bitcoin requires sophisticated electronic devices that solve highly complex math problems. The prize is the cryptocurrency which has created a fever. Bitcoin is like digital gold.

The history of gold is nearly as old as humankind itself. It's believed to have been relished by prehistoric humans as evidenced by various discoveries. Gold as a universal currency really took off in ancient Egypt. The Nile region was rich in gold and its attraction for jewelry, ornaments and art grew. The Egyptians thought the precious metal possessed heavenly qualities. The pharaohs collected and stored vast quantities of gold and exchanged it for desirable goods like cattle, wood and wine. International trade took off — as did gold's allure.

Speculation is nothing new. On a cool, January day in 1848, an event occurred that changed America as we know it. In a small town, along the banks of the American River, in the foothills of California, small flakes of a shiny substance were found. It was gold. A sawmill was being built for a man named Sutter. It was never completed. They tried to keep it quiet. They failed.

Information flowed at a much slower pace back then. Once word spread that there was gold in those hills, people from all over swarmed to Northern California to strike it rich. The population exploded from an estimated 1,000 settlers to 100,000. The year was 1849. The Gold Rush attracted many men in their twenties. They are forever known as the 49ers.

Full of enthusiasm, seeking fortunes, these 49ers borrowed money, mortgaged properties and spent their life savings to make the long and challenging trip to California. They came by ship, by horse and by foot. California was the land of opportunity, soon to be known as the Golden State.

People came, but few found a fortune. But opportunity was circling as the gold fever grew. The real money was made by selling supplies, goods, denim jeans and opening banks. Innovators like Levi and Wells did very well. The Golden State has long been viewed as the land of opportunity and innovation. Silicon Valley is the epicenter.

So what lies ahead for cryptocurrencies? It's anyone's guess. The vast majority of the population does not understand them. Younger generations are the ones making the market and stoking the flames. Of course, they've grown up in this digital age. They are destined to explore and populate the metaverse. Cryptocurrencies will be present there.

For those who still have trouble understanding the allure of digital currencies: imagine such a thing as Amazon Money or an Apple Coin, used exclusively on their respective platforms. They both have large and loyal customers.

It's real tender that is used for transactions. It would stay on the platform but has universal embracement. It's not much different than frequent flyer miles on airlines. Having a digital currency would have functionalities and efficiencies that physical fiat money cannot replicate. The possibility seems real, but that's a story for another time.

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