Since cryptocurrency is so new, many are trying to understand it by comparing it to something else.
Is it like gold? Stocks? Perhaps oil?
Yes and no are the answers.
Let’s talk about why it is being compared to gold first.
There are many types of cryptocurrencies. There’s Bitcoin, Ethereum, LiteCoin, and others.
We will talk about how each is different from others. You can also check the description box if you want to jump to that video.
Of all these crypto currencies, Bitcoin is the one being compared to gold because of two reasons:
First, Like gold, Bitcoin is finite. There are only 21 million bitcoins in the world. There will never be more than that. The creator, known by the name of Satoshi Nakamoto, put a cap to it. It is that scarcity that’s making it so valuable just like gold.
Next, like gold, Bitcoin and other cryptocurrencies are not connected to a federally controlled payment system. In other words, the Fed can’t print gold. No one can. Bitcoin and gold live outside anyone’s control.
The major similarities just about end there, though.
For one, gold is physical while cryptocurrency is digital.
Gold also has history on its side. Through all economic crashes, gold has proven to have held its value. Cryptocurrency is new. It hasn’t established a track record.
So while there are similarities, there are more differences.
Next, why is it being compared to Stocks.
Think of it this way. You’re buying into a start up. This is new. You bought a product that is only starting to find its way to the market and creating its very own industry.
Investing in it IF you believe in the technology.
So, unlike stocks, you don’t own shares. You will never have the opportunity to vote on future plans.
What you have is the product of a startup. A product whose existence is dependent on the existence of the company.
Like any startups, there is a possibility it will fail. This is true to any company you invest in.
We have not seen a high-profile crypto fail yet. But that will most likely happen.
So, what should we compare Cryptocurrency?
The best way to view cryptocurrency is like a commodity. It’s a new type of commodity.
Although it has similarities to gold and other assets, it is still so drastically different.
We have never seen a commodity in such infancy.
Gold was a form of currency before it became a commodity.
Oil in its infancy immediately fit into a specific industry.
This one is a new product that will evolve and when it does, it will affect the entire global financial system.
Just understand that, for now, it is more like a commodity since there are very few who are spending it but as more and more businesses start accepting crypto currencies, it will change sooner than later.