Marriage Of Gold And Cryptocurrencies: A New Future?

The debate between relatively new digital cryptocurrencies versus ‘tried and true’ gold has dominated most precious metals related websites. But what if gold and cryptocurrencies were combined? According to a Bloomberg article a NYC Real Estate Mogul, after learning about cryptocurrencies from his son, is putting this concept to work by securing a minimum of $6 billion in gold reserves to back his new cryptocurrency.

The concept of pegging a digital currency to an external reference is not a new one. Called stablecoins the idea is to back the currency with something permanent. Using gold reverts currency back to the origins of how our traditional banking system started and helps ‘stabilize’ price instability. 

In the future, will digital currencies (when combined to physical gold or physical silver) offer a new opportunity for re-inventing the old banking system? Today banks and governments rely upon one another.

They both serve the economy but are interlinked in such a way that one can save the other in times of turmoil – governments step in to save banks and banks in turn support government through bond purchases.  

Combination of gold and cryptocurrencies

The Historical Failings of Fiat Currencies are Repeating

It was not always this way, on the other hand, looking back to history, fiat currency grew out of a barter system, where families or companies issued transferable notes against their hard assets.  Those notes [ie. 1oz note of Johann’s gold vault in Dusseldorf] were exchangeable into the physical assets.  The buying power value of a note was directly tied to the credibility of the issuer. Also, notes which could not be converted into the hard asset, usually silver or gold, were considered fraudulent.

References to government-issued notes date back to the 1300s in China. Western world governments were issuing credit notes ‘paper money’ by the 1700s, with these notes backed by a ratio of gold and silver. On the other hand, during times of war, countries would turn to ‘fiat currencies’. For instance, the US government halted notes backed by gold as well as silver during the American civil war.  To fund the war effort, the government issued a fiat currency referred to as “Greenbacks”. 

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