Since the time we have been out of the barter system, two items work as the intermediary: Gold and Fiat money. Though both of them have been used as a medium of transactions, there is a basic difference between the two that is Government’s back. Fiat money is issued and controlled by the respective Governments and Gold works as one of the most valuable assets of the current times that are anti-inflationary.
However, with developed technologies and increased human curiosity, recently, we have seen the emergence of cryptocurrencies running on blockchain technology. Cryptocurrencies are similar to the fiat currency, but there is no controlling authority here and the owner possesses complete control over it. It should be noted that the oldest cryptocurrency, Bitcoin (BTC) still holds a huge portion of the whole industry.
At the times when we have multiple options to invest in, an analysis to that extent covering every possible dimension is required. Here is an analysis of all these three mediums of transactions with respect to certain features.
As far as the availability of Gold is concerned, it is amply available as a precious material. However, it is one of the costliest metals and its high cost may not facilitate everyone to store it. It also requires huge tangible space due to its heaviness. Fiat money, on the other hand, is backed by the Government. Its availability depends on the demand and supply determined by the Government of the day and its monetary policy. The newest source of financials, Bitcoin, is based on blockchain technology and as of now, it is readily available for holding.
As Gold can only be stored physically, there is always a threat of security. The same goes for fiat money if we store it physically with us. However, in the times of digital advancement, fiat money is also stored online and it may not subject to theft. Here, cryptocurrencies emerge as the winner as they work as decentralized online wealth. Most of the cryptocurrencies are impossible to trace and easily traded. Barring a few instances of theft, Bitcoin is considered as one of the safest modes of investment.
All three financial instruments seem to have a certain degree of volatility. Though Gold is seldom devalued, we cannot rule out price volatility completely. In the case of fiat money, the value of one currency against another currency is determined by the market and sometimes by the Government. However, the highest volatile of the three remains Bitcoin. As it is still in the nascent stage, a rise and fall in the demand and low awareness of the technicalities lead to high price fluctuations in its value.
As far as the fiat currencies are concerned, the scope of making forge notes is always higher. We have seen many big economies facing hurdles due to the increased supply of counterfeit notes. As far as Gold is concerned, purity and authenticity are tough and complex to be determined. Here, Bitcoin delivers an excellent avenue for holding original financial instruments. As everything is done online and on a secured private network, there is almost no scope for counterfeiting Bitcoin.
As mentioned earlier, the local Governments, through numerous monetary policy instruments, regulate the market. Governments decide the liquidity of the market and how much money should be supplied. In the case of Gold holding as well, certain Governments have issued guidelines fixing the threshold limit. We have witnessed instances where Governments have raised taxes to limit the consumption of Gold. However, Bitcoin is completely decentralized; either Government or any other institution possesses no control over it, and that is the reason behind popularity of bitcoin games online.
Almost every transaction done through fiat money is recorded by the Government and the worth of an individual with respect to fiat money should be reported to the Governments so that they can levy tax. So, there is no iota of privacy on the ownership of fiat money. As far as Gold is concerned, it is not as public as fiat money, but Governments do have certain control over the ownership. Governments have directed the large Gold holders to declare it as assets so that they can be subject to taxation. However, Bitcoin is completely private and leaves no prints behind for tracing.
In the case of fiat money, Governments always work as a middleman. They facilitate trade and transfer of value across borders. In the case of Gold, holders may have to depend on the exchanges or third parties to get the real value after exchange. Cryptocurrencies seem to have an edge here. Transfer of value through cryptocurrencies requires no such mediator that can trace your identity. It is done privately and with complete security. Though the Bitcoin holders have to depend on the exchange for a transfer, there is no third-party interference here, unlike fiat money.
We have never been static since the initiation of civilization and we will never be. With increased avenues for research and development, no one can avert change. So, cryptocurrencies seem to be a strong contender of fiat currencies for the future. However, there are still a lot many dimensions that the crypto industry may have to look at, like the trust of the users, the security of the transactions and a green-signal from the Governments. There may be numerous advantages of switching to cryptocurrencies, but we have still miles to go to achieve a complete dependence on them.