@DavidW I am interested on your opinion on the impacts of an inflationary price of gold (should it occur). If you'd be willing to take the time to read through the ramblings of my mind, I'd be appreciative of your views or insights.
As we know gold has been used forever and day in ecominc terms as hedge against inflation. The fact that it is not only a rare mineral but a purposeful usable commodity that is almost 100% recyclable and indeed a finite resource (planet earth only has x amount of gold, will never have more) make it the a perfectly suited as such a hedge for fiat. It's scalability lead to its failure as a usable currency and fiat eventually became dominant. The strongest of all fiat currencies and the yard stick of the global economy being the USD which was of course essentially tethered to the price of gold until Nixon in 1971. Progressively we have seen steady inflation in fiat major currencies and on occasion, explosions in less developed countries. I expect that next fin years inflation of the USD will dwarf all years before it but we'll see. In these times, investors, bank and even governments may turn to gold as a safe haven from inflation. I understand this, I know you do and I sure hope anyone out there investing their hard-earned does as well. But what is the effect of inflation in the POG and how does that dynamic shift if we attempt to use it as an alternative currency?
Scalability led to the demise of gold as a currency. With the invention of proof of stake blockchain, we now posses the technology to make it scalable as currency again and the use of it as such is haled by some as the solution to the fundamental inflationary problems with fiat. Please join me on a hypothetical. Let's say the idealism of a gold backed cryptocurrency is adopted the world over. It is able to be used as payment through Visa/Mastercard networks and eftpos terminals so it is 100% functional as a currency in every country in the world at the same value. Sure, a gram of gold will buy you more in a Mumbai market than a restaurant in Olso, but 1 gram is always 1 gram of gold.
Now, as we know there is only x amount of Gold in or on the planet, and there isn't enough gold in the world tof und an entire global economy if its used in this fashion. Well, not at $1800 and ounce. But what about 18,000 an ounce? Or 180,000 an ounce or 1.8 million an ounce? You bet there is because the technology allows us to fractionalise the physical asset infinitely. Does that very technology that allows us to make gold scalable once more eventually become a double edged sword that lead to the very same inflationary problems that fiat currencies suffer from? Does having the ability to simply keep increasing the value of an asset and subsequently frantioanlise it more and more and more in a way create its own kind of inflation? Furthermore, if gold were to take over as an international currency, what is it measured against if fiat's are no longer of value? My deeper question to you is do you think fiat will always be relevant simply for the need as a measuring stick for its respective economies?
Now this hypothesis is of course exaggerated, I do not expect to see gold adopted as a complete global currency, but I do see the potential of it being implemented somewhat. I therefore see the potential for the same issues I've raised, just not at that scale.
The same theory can, in my opinion be applied to Bitcoin for those out there silly enough to think it will become the dominant global currency. We bought bitcoin with our dollars and it went up massively in value so we can turn it back into dollars and go buy stuff... So what happens without the dollar? Sure we may be able to buy things through a payment gateway using it at a set rate, but what's the rate? What the measuring stick we use to determine the value of our 0.000000013 of a bitcoin?
I find the concept of cryptocurrency exciting and the possibilities opened up by blockchain technology absolutely fascinating. I think its implementation having a token back by gold like the bullionfx concept an important stepping stone. (Whwther they pull it off and anyone else does in the future) I really do believe this will be a big part or even a dominant part of the future. I just don't get the end game. Perhaps no-one does yet?
Well, if you made it this far, there are my thoughts of insomnia. Interested in your take on things if you could spare the time.
TNR Price at posting:
3.0¢ Sentiment: Hold Disclosure: Held
(20min delay)