Ah, gold. One piece of shiny metal that symbolically represents not just wealth but power in the medieval period. Everywhere from the legend that pirates will hunt treasury with full gold stuck in the treasury box to modern iPhone with gold color as the cover. One thinks of gold as valuable when anything is made out of gold. But is gold really that valuable?
Why do we value Gold?
Rarity:
According to BBC Science Focus, it requires a huge amount of” ‘chemical forges’ of supernovae, the death of giants starts to create most chemical elements”.
Noble:
Throughout human history, gold is an object of value that is used by Gods in Egyptian, Greek, Roman.
Imperishable:
Gold lasts longer because of its special chemical structure that it does not corrode. The Mask of Tutankhamun is made out of gold around 3,000 years ago.
Shapeable or easy to store:
Gold is easy to melt and form shapes that people can store in. Think about a treasury box full of gold bars.
Difficult to mine:
Mining gold isn't that easy as just dipping a hole. It requires a lot of geological research and labor-intensive mining operations which may last 10 or more years.
However, many people argue that Gold is not valuable.
No intrinsic value but historical value:
Economists argue that Gold was used as a medium of exchange throughout human history and it is custom to assume gold has value as gold standard. However, it itself does not have any value but a piece of metal.
Gold did not perform well in modern history of each financial crisis:
If you see the graph above, gold has been misvalued many times during the financial crisis. Its valuation has fluctuated greatly throughout the last 100 years.
Price vs. Valuation:
Price is when the seller gets it from the buyer. It is objective and offers the cost.
Valuation is when the buyer wants or can afford to pay. It is a subjective offer of the cost.
We then can categories below as:
Objective attribute: rarity, imperishable, difficult to mine
Subjective attribute: noble, easy to store
None attribute: no intrinsic value, hedge of financial crisis is a myth
Therefore, what buyers and sellers left to consider besides None Attributes is difficult to mine.
In conclusion of Gold valuation:
Gold’s valuation is simply very difficult to estimate even though it was historically a store of value. Its valuation was subjective and it caused a financial crisis because banks over leveraged its storage gold which created inflation.
The only valuation gold can count on is through a difficult process of mining or Proof of Work!
Proof of Work (Gold version)
In order for someone to physically possess gold, it requires processes:
Massive labors to work at mining
Physically invest labors to bring gold out of ground
Distribute in global supply chain
Hire security forces to guards the gold for protection
Once in your hand, you need a place to store it security with possible security of some combination that only you or someone close to you know
Wait a minute, it is exactly like the Bitcoin blockchain isn’t it!
Proof of Work (Bitcoin version)
In order for someone to own Bitcoin, it requires processes:
Bitcoin miners ready to mine
Bitcoin miners to mine Bitcoin blocks through process transactions
Bitcoin is distributed through blockchain in the internet
End users have wallet to send and accept Bitcoin
End users have pair of keys as private key is to secure your own wallet
You just solved the biggest mystery in 2021!
Next time, if someone believes in Gold but is skeptical about Bitcoin, here is your road map of argument!
In conclusion: Bitcoin improves Gold
Unlike Gold with technology and productivity plateaus, Bitcoin is an improved version of digital twin that has technology potential uptrend that can improve over time and continue evolving.
I did not, previous metals like Gold did not perform any better during recession and you do you probably want to own gold even economy is tanked and you will not able to sell anywhere. You may refer as Gold ETFs which only out performed after the recession. That has been said, if you put your money in previous metals, you will not get anywhere near compares to stock market. My argument here is that Bitcoin resemble some characters like gold but they are all speculated assets. However, your point is well taken.