Gold Rush 2.0: Is Gold the Missing Link in Bitcoin's Economy?

Business.com / Accounting / Last Modified: February 22, 2017

Bitcoin has seen a rapid flux in its fortunes since the cryptocurrency’s launch in 2009. It steadily rose until reaching a peak value of $12

Bitcoin has seen a rapid flux in its fortunes since the cryptocurrency’s launch in 2009.

It steadily rose until reaching a peak value of $1,242 per Bitcoin back in 2013. Soon after, it crashed down to a sub-$1,000 level and is currently hovering around $350.

Needless to say, the rapid rise and decline of the cryptocurrency’s value has made many millionaires while leaving many investors bankrupt. The period also saw a flurry of speculators betting on the fluctuations of the currency from minute to minute, cementing the doubts regarding its stability.

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Market and Regulatory Challenges

During this roller-coaster ride, Bitcoin has seen many ups and downs, apart from its valuation. The most notable controversy regarding Bitcoin comes from the fact that the cryptocurrency is not subject to normal financial regulations, and that it offers complete anonymity to the users. This has pitted many Bitcoin exchanges against regulators over accusation of financial fraud.

For instance, one of the largest Bitcoin exchanges, Mt. Gox, was shuttered in 2013 when it was accused of money transfer violations by the Department of Homeland Security. Silk Road, the famed dark web hub, was also notoriously associated with Bitcoin before being taken down by FBI in a dramatic turn of events back in 2013. Many other Bitcoin exchanges have crashed after the users were defrauded of their deposits.

Volatility Is a Concern

Despite such hiccups, Bitcoin is down but not out. It has been able to amass a sizable base of users and a significant ecosystem around it. However, the sheer price volatility and the availability of many other alternative currencies modeled on similar systems has rubbed away a lot of the allure of Bitcoin. As a result, the Bitcoin market is seeing no noticeable growth. Still, it is no surprise then that a number of other viable alternative are rapidly springing up.

Notable among these are startups dealing in commodities like gold. After a sustained slump, gold prices have rapidly rebounded recently in the international market and are expected to go strong. Although major world currencies no longer peg their values against gold, such an increase in value bodes well for the metal since it can independently rise on its own, based on the gross demand.

This resurge of gold is supported both in traditional and digital markets. Case in point, startups like Bitgold are seamlessly integrating payments and savings in gold, literally putting the metal at the fingertips of investors and regular people who wants to hedge against currencies depreciation.

A New Gold Standard?

This spells a new phase for gold, which is making a transition from the traditional world of finance to the cutting-edge world of internet-based startups. Traders can now purchase Vaulted physical gold bullion instantly, Set-up a savings plan, redeem it anywhere in the world with their Prepaid Card and even send gold to other users.

. This has led to a democratization of gold investing. Integration with technology has also trimmed down transaction costs of buying gold, making it a viable investment opportunity for the users. Dealing in gold also lets such startups be surer of their value and ward off the uncertainty that is typical of the cryptocurrencies.

There has been a lot of conversation surrounding the possible integration of gold with a cryptocurrency. Such a scenario would essentially offer the best of both worlds – the stability of gold and the sheer power and flexibility of a cryptocurrency. One example of this is the Hayek coin which, unlike other cryptocurrencies, is valued at 1 gram of gold at current price. While leading financial publications consider a lot of potential in this, the efficacy of gold in the cryptocurrency world is yet to be seen.

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Why Commodities Can Be Better Than Cryptocurrencies

Apart from the mainstream cryptocurrency market, the uptick in the interest of commodities such as gold, even among tech-savvy entrepreneurs, as compared to currencies like Bitcoin is very notable. For a start, the anonymity and lack of regulation involved in Bitcoin-like currencies has been the key ingredient contributing to its involvement in illegal uses and a target for government shutdown. To top it, the sheer volatility of cryptocurrencies makes them a very unviable investment option. They may be suited for money transfers, but their lack of stability makes them exceptionally risky for investors.

Gold, on the other hand, has withstood the test of time. It has been able to sustain its value, especially after central banks dropped the gold standard. Amidst the flurry of many new alternatives, gold has solidly stood its ground and continues to be used as a financial standard of sorts and a hedge against mismanagement in budget deficits.

To add to this, the marriage of gold with technology promises rich dividends. Leading financial experts are already spelling a good future for this new financial model. Conventionally, gold has been an immensely popular but fairly limited investment avenue because trading it was cumbersome. This is no longer the case with digital startups integrating the metal into their cutting-edge technologies. Such integration has made it possible for virtually any user to buy gold, transact in it and redeem it and use the funds in everyday transactions. Trading in gold no longer involves simply buying the metal and putting bullion bars in a vault. It is more quick, flexible, dynamic and convenient for the general public.

Conclusion

Cryptocurrencies like Bitcoin have led the way for an all-new way of making transactions and transferring money. But they are just the beginning of a technology that promises to revolutionize the world of finance in the coming years. Although Bitcoin and other digital currencies have plateaued, they have proved that secure alternative financial solutions can and do work. With the rising tide of gold-based online solutions, it is time for the second phase of the digital revolution to come to fore. As rudimentary digital currencies slow down, the gold-backed solutions are emerging as more secure, viable alternatives.

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As per expert opinion on digital currencies, the likes of Bitcoin may not necessarily be the currencies of the future simply because of the lack of stability, security and investor assurance. Yet the technology of these currencies holds potential. If stability, ease of transaction and security could all come together in any form of digital currency, it can truly be a futuristic solution applicable to the global world of financial transactions. Emerging commodity-backed digital currencies provide precisely such a solution. These may not be perfect yet but they certainly herald the way to a new future.

Image via Flickr

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